The Government National Mortgage Association (Ginnie Mae) said Wednesday the proportion of VA loans in its portfolio nearly doubled in the past decade thanks to a targeted program to support veteran homeownership.
The increase was noted in a 17-page report that was submitted to Congress last month by the government agency in accordance with the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018. It is Ginnie Mae’s first comprehensive report on the secondary mortgage market liquidity of mortgages guaranteed by the U.S. Department of Veterans Affairs (VA) and pooled by issuers into Ginnie Mae mortgage-backed securities (MBS).
According to the report, the proportion of VA loans in Ginnie Mae’s portfolio has increased from 23% of issuances in 2011 to nearly 45% of all newly issued MBS in Fiscal Year 2021.
The reports states that Ginnie Mae's MBS are considered “the best source of liquidity for VA lenders, evidenced by the fact that 99.4% of VA fixed-rate mortgage loans guaranteed in 2021 were packaged into Ginnie Mae MBS.”
It adds that, on a full-year basis, the net issuance of VA guaranteed loans — new loans less paid-off loans in securities — has exceeded that of FHA insured loans every year since 2013, and the VA share of the Ginnie Mae portfolio is at a historic high.
“Ginnie Mae and the U.S. Department of Veterans Affairs have built a robust, resilient, and effective program to support homeownership for veterans and active duty servicemembers,” said Ginnie Mae President Alanna McCargo. “The VA liquidity report provides an in-depth look at the health and liquidity of the program over time, which is crucial to ensuring the mortgage benefit that our military has earned is available through all economic cycles,”
Ginnie Mae’s MBS program is designed to provide liquidity and stability to support homeownership for veterans and active-duty personnel, particularly first-time homeowners. In Fiscal Year 2022, Ginnie Mae said its VA-backed MBS-guaranteed mortgages helped more than 204,000 veteran and active-duty households become first-time homebuyers.
The agency also said that, thanks to the program, more than 727,000 first-time homeowners are in the Ginnie Mae portfolio.
“The market liquidity for VA guaranteed mortgage loans is strong,” the report states, “due to a consistent supply of VA guaranteed mortgages available to eligible borrowers from a large number of lenders, and consistent demand for Ginnie Mae MBS from investors around the world that consist of VA guaranteed mortgages.”
The report notes, however, that in 2016, Ginne Mae identified “a wave of early loan repayments and serial refinancing as a problem with much greater incidence in VA mortgages in Ginnie Mae securities than loans insured by other agencies.” The agency found that many borrowers were refinancing when it did not actually benefit them “because the costs involved … might outweigh the benefit of a lower payment.”
As a result, the VA and Ginnie Mae made “significant program policy changes in 2018-19” to address the MBS program’s terms for refinance lending, and especially cash-out lending and pooling. The changes, the report states, were driven in large part by concerns that additional measures were necessary to ensure that VA refinance activity serves the interest of veteran borrowers.
Other highlights of the report:
- Recent trends showed an improvement in the price difference between Ginnie Mae MBS and those of the government-sponsored enterprises, “indicating a solid investor appetite for Ginnie Mae MBS, including those containing VA-guaranteed loans.”
- Cash-out refinances have been a small part of the program since the 2018-19 changes, “and although Ginnie Mae cannot evaluate the effectiveness of the policy changes made by the VA in that period, it has concluded that its own 2019 cash-out refinance pooling policy change has not had a negative impact on general program liquidity.”
- VA lending continues to display lower borrower delinquency levels and higher levels of refinancing compared to FHA lending, and
- The Top 10 VA lenders (by loans guaranteed) for Fiscal Year 2021 accounted for 47% of Ginnie Mae’s VA production that year. “Because eight of these were non-depositories, it should be noted that in August 2022 Ginnie Mae published new financial eligibility requirements for non-depository issuers — these requirements are more closely tailored to a servicer’s financial risk and should therefore improve stability in the housing finance system by facilitating the ability of servicers to secure financing.”
In addition to touting the program's success, the report also offers Ginnie Mae’s recommendations for improvements, which include:
- Establishing a formalized Ginnie Mae/VA working group to discuss market conditions and program issues.
- Establishing a task force that would include representatives of Ginnie Mae, the VA, and the Consumer Financial Protection Bureau (CFPB) to monitor and discuss business practices relating to VA lending, and
- Implementing memoranda of understanding to facilitate information-sharing within these groups.
