[Update 1: includes more discussion of Ginnie Mae’s repurchase policy] Ginnie Mae will allow issuers to repurchase mortgages from its guaranteed securities if the loan completes a three-month trial modification, according to guidance released Friday. Modified loans were not previously eligible for repurchase. Ginnie guarantees the timely payment of interest and principal to investors in MBS collateralized by Federal Housing Administration and Veterans’ Affairs mortgages. The FHA directed servicers last week to place borrowers into a three-month trial before providing a permanent modification if they meet a specific set of requirements. The new repurchase standards take effect immediately. Previously, issuers could only repurchase loans when a borrower failed to make a payment for three consecutive months. “This is one of our most important efforts this year,” said Ginnie Mae President Ted Tozer. “FHA loan performance data shows that many modified borrowers are at risk of a redefault.” Because modified loans often remained within the Ginnie Mae security and were not subject to a repurchase, investors and the FHA carried the risk of a redefault if the loan didn’t reperform as planned. “By requiring that high-risk non-HAMP borrowers undergo a trial payment period on the modified loan terms in order to test the borrower’s ability to repay, we hope to avoid the pattern of high re-defaults on modified loans,” Tozer said. “Given the investor concerns about pre-payment speeds, working with FHA to create this trial modification initiative was clearly in the best interest of borrowers, issuers, and investors.” Write to Jon Prior. Follow him on Twitter @JonAPrior.
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