Announcement 19-0069: Cash-Out VA Loans with LTV Greater than 90% - VA APM 19-05

Overview

As a reminder, the maximum lock on VA Cash-Out 90%+ LTV loans is 30 days effective August 15th.

Ginnie Mae issued All-Participants Memorandum (APM) 19-05 on August 1st which requires all Cash Out VA loans in excess of 90% LTV to be placed in Ginnie II Custom Securities vs. Ginnie II Multi Issuer Pools (MIP) effective November 1, 2019. Our capital markets team is currently looking at all options for these loans after the November 1, 2019 pooling deadline. While they are working through the available options, we need to make the following adjustments to our Lock Policy and Loan approvals:

Please note: To ensure all loans are purchased on or before September 30, 2019, Underwriting will add a condition to require that all files are delivered to CMS by 9/15 and purchased by 9/30.

Effective August 5, 2019

  1. Maximum Lock available on VA Cash Out > 90% LTV is 45 days, 60 day locks are unavailable.
  2. No lock can be extended past September 30, 2019
  3. A new condition will be placed on all loan VA Cash Out > 90% LTV loan approvals requiring the loan to fund by September 30, 2019.

Effective August 15, 2019: Maximum Lock available on VA Cash-Out > 90% LTV is 30 days, 45 and 60-day locks are unavailable.

We will update you on the continued availability of VA Cash-Out > 90% LTV after September 1, 2019 pending Capital Markets research into available placement options for these loans in the secondary market.

For reference, here is the post from Acting Ginnie Mae president Maren Kasper explaining the rationale for the change:

Today, we published an All-Participants Memorandum (APM) addressing pooling requirements for Veterans Administration (VA) refinance loans. Some of the items are necessary for the enactment of legislation, but one is a new restriction on the pooling of VA cash-out refinance loans — namely, limiting the securitization of such loans with LTV’s greater than 90% to custom securities. This APM coincides with the Federal Housing Administration’s announcement of a reduction in the allowable cash-out refinance limit in the program from 85% to 80%.

Ginnie Mae described its reason for considering restrictions on VA cash-out refinance lending in the Request for Input (RFI) published in May. The RFI articulated the concern that faster prepayment speeds for VA cash-out refinance lending were harming the market value of the Ginnie Mae II MIP securities and negatively impacting other types of loans included in the securities. The response to the RFI did not alter this point of view.

The 90% threshold reflects an attempt to balance the need to protect the security with the desire to support a broad lending benefit to veterans. The more aggressive action would have been to require that VA cash-out loans adhere to the same standard as FHA cash-outs (now 80%). Instead, Ginnie Mae chose a more limited approach.

We recognize this new restriction could have an impact on the pricing of high-LTV VA cash-out loans. However, the following points should be kept in mind:

  • The new 90% threshold for veteran borrowers is still significantly higher than the threshold for non-veteran borrowers (under the FHA or Fannie Mae/Freddie Mac programs).
  • Loans in excess of 90% are still eligible for inclusion in Ginnie Mae guaranteed securities, just not the GII MIP (because its vulnerability to volatile performance can affect pricing for a wide range of borrowers under the government-sponsored programs).

The development of a transparent, liquid market for cash-out loans, securitized through custom pools, is an objective that will be supported by Ginnie Mae. The other alternative paths for excluded cash-outs identified in the RFI were not strongly supported in the RFI responses and will not be pursued at this time.

Continued achievement of Ginnie Mae’s mission — to ensure housing affordability for the full spectrum of borrowers served by the federal homeownership programs — requires continual balancing of the interests of various participants and beneficiaries.

In this instance, Ginnie Mae’s determination was that the market penalty, which results from the relative propensity of VA cash-out refinances to pay off very quickly, is harmful to other borrowers financed via the GII MIP and that bringing the allowable LTV threshold closer to that which prevails in most other segments of the industry is the fairest approach to the problem.

Ginnie Mae continues to collaborate closely with the VA on this topic and stands ready to adjust its program requirements as warranted by VA’s continued work on the issue or by other developments.

Contacts

Please contact CorrespondentRM@carringtonms.com with any questions.

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