The churning of loans backed by the Department of Veterans Affairs has long been a thorn in Ginnie Mae’s side, as the agency has worked for three years to curb abuses by VA lenders.
Now, Ginnie is taking yet another step to squash abuses, announcing Thursday that it is moving forward with a proposal to remove VA-backed cash-out refinances with high loan-to-value ratios from its flagship securities.
First announced in May, the proposal revises the pooling eligibility requirements for VA refinances, creating new criteria for cash-out refis with loan-to-value ratios that exceed 90%.
After a three-month period to collect industry feedback on the proposed rule, the agency has announced that 90% LTV cash-outs will officially be ineligible for Ginnie Mae I Single Issuer Pools and Ginnie Mae II Multiple Issuer Pools starting November 1, 2019. Instead, these high LTV loans can be placed into a custom Ginnie Mae pool.
Permanent construction financing loans will be the only exception, Ginnie noted.
According to a release issued by the agency, the revised pooling requirement “provides global investors with increased certainty in the performance of the Ginnie Mae security, which ultimately lowers mortgage rates for all borrowers served by the program.”
Ginnie’s move coincides with steps taken by the Federal Housing Administration to limit cash-out refinances on FHA-backed loans.
In a release announcing both changes, the FHA said the prevalence of VA cash-outs was an increasing concern for investors.
“Cash-out refinance programs are particularly susceptible to accelerated prepayment speeds, which is why Ginnie Mae is restricting the inclusion of such loans to custom MBS securities,” the statement read. “This allows for greater market transparency for investors pricing Ginnie Mae securities.”
Ginnie Mae Acting President Maren Kasper also weighed in.
“Today’s announcement underscores Ginnie Mae’s commitment to ensuring the agency’s policies enable homeowners to borrow prudently, utilizing the government-guaranteed mortgage market,” Kasper said. “Additionally, this policy provides global investors with increased certainty in the performance of the Ginnie Mae security, which ultimately lowers mortgage rates for all borrowers served by our program.”