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With delinquencies rising on Federal Housing Administration-insured loans, banks are expected to repurchase billions of dollars of such loans this year from the Government National Mortgage Association.
March 12
The Government National Mortgage Association's president said he does not expect lenders to repurchase delinquent loans from its pools in such large chunks as they did in the fourth quarter.
Realizing that it no longer made sense to advance payments to investors on these loans — which carried rates of 6% to 6.5% when their internal cost of funds is much lower — lenders repurchased $57.6 billion of mortgages from Ginnie pools in the fourth quarter. Buybacks totaled $186.5 billion for all of 2009.
"The fourth quarter is going to be an aberration," said Theodore Tozer, who was sworn in as Ginnie's president six weeks ago.
Last year, he said, lenders were so preoccupied with implementing the government's Home Affordable Modification Program, they allowed delinquent loans to accumulate in Ginnie pools.
"They could have bought back earlier and made a lot of spread," Tozer said in a March 24 interview with National Mortgage News, but they ended up playing catch-up in the fourth quarter.
He noted that the large depositories have the resources to regularly repurchase mortgages once they become 90 days past due. He said he doesn't expect to see "big slugs of buybacks" in 2010.
Ginnie Mae allows issuers to remove a delinquent mortgage from a pool once the borrower has missed three consecutive monthly payments.
The four largest Ginnie issuers — Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Well Fargo & Co. — accounted for 68% of the fourth-quarter buybacks. An issuer that repurchases a loan from a Ginnie pool can always modify it and then repackage the mortgage into a new Ginnie mortgage-backed security.
Tozer has been involved in the Ginnie Mae program for three decades. "I got National City Bank approved as a Ginnie Mae issuer in 1987," he said.
After PNC Financial Services Group Inc. acquired National City in 2008, he remained as senior vice president for capital markets.
Rising delinquency rates are putting a lot of pressure on independent mortgage bankers. "Buybacks are a tremendous strain on nondepositories that don't have a lot of cash to buy the loans back," Tozer said.
Independents also are getting squeezed by their obligation to cover delinquent loans and make monthly advances of principal and interest payments to MBS investors.
Ginnie Mae officials are looking for a way to help the independent mortgage bankers without incurring too much risk. "We have had some internal discussions on what we can do," Tozer said. "But we haven't come up with an alternative yet."
Tozer stressed that he doesn't want to do anything that would jeopardize the integrity of the Ginnie Mae program, which issued the first mortgage-backed bond in 1970.
Ginnie Mae guarantees timely payments of interest and principal on its securities. The underlying loans carry guarantees from the Federal Housing Administration and other government agencies.
Issuance of Ginnie mortgage-backed securities has jumped fourfold since the private-label mortgage securities market shut down in 2007, to $414 billion last year. Yet Ginnie Mae has only 75 employees, including 13 that joined the agency this year.
After being treated like a second cousin twice removed from Fannie Mae and Freddie Mac for most its life, Ginnie commanded a 26% share of the securitization market last year. In the fourth quarter, Ginnie's market share hit 34.5%, thanks to high home-purchase mortgage activity.
Tozer said the agency has made good use of its contractors and getting the most from its staff. But he said Ginnie Mae could get "quite a bang for the buck" with a few more resources.
"My gut reaction is we are going to need more people to take the pressure off the people that are here," he said. "They are working hard to get the job done."
