Ginnie Mae and Federal Housing Administration officials acknowledged concerns about a surge in delinquencies stemming from an FHA rule change, indicating they do foresee a date when it ends.

Pressure appears to be on track to let up later this year, Ginnie President Joseph Gormley told attendees at the Mortgage Bankers Association's secondary and capital markets conference. Gormley also has been serving as FHA commissioner while Frank Cassidy has been on leave.

Gormley said that Ginnie plans to temporarily maintain a delinquency reporting threshold exception from loans affected by a shift away from pandemic leniency in the FHA's "waterfall" of decisioning for distressed borrowers' loans, which now requires trial modifications.

Keeping those thresholds in place without accounting for the change would have been "kind of unfair of us," Gormley said, noting that it was putting pressure on some issuers to buy some loans out of pools, straining liquidity. Doing so would not have been healthy either for issuers or Ginnie, he said. 

Ginnie's delinquency thresholds vary but can be around 5%, he noted. The average delinquency rate for FHA insurance loans Ginnie securitizes was verging on 12% in the MBA's latest survey.

Research from the Department of Housing and Urban Development, which both Ginnie and FHA are part of, has shown that older loans impacted by the FHA's rule change account for much of the pickup. Ginnie guarantees securitizations of loans that other government entities like the FHA back.

Previous pandemic-era leniency allowed repeat requests for assistance, so when the department examined the performance of FHA loans in December 41%, or nearly half, had received three or more partial claims, said Matt Jones, deputy assistant secretary for single-family housing at HUD.

However, shorter-term 30- and 60-day delinquencies are starting to improve and the FHA insurance fund is in good shape, according to Jones. Cure rates have been better than anticipated, according to Gormley.

While Gormley said Ginnie is willing to provide some flexibility in managing delinquency thresholds, he noted that issuers should ideally have "balanced portfolios" that avoid concentrations of risk.

Other developments at FHA and Ginnie

The size of Ginnie's outstanding book of business has grown notably since the Great Financial Crisis and needs to be protected as a source of support for housing affordability in the United States, Gormley said, noting this is nearing $3 trillion. Ginnie's latest monthly report shows its portfolio totaled $2.93 trillion in April. Its $57 billion in issuance during the month marked a high for the year.

Gormley said Ginnie is "generally satisfied" with the quality of its counterparties but noted that distressed borrower rule changes that have occurred at the Department of Veterans Affairs in addition to FHA have left some companies "exposed."

"If those companies ever failed, those are pretty illiquid portfolios," he said.

The development is something Ginnie is "keeping an eye on," according to Gormley. 

Ginnie is also monitoring issuers to ensure they are meeting refinancing requirements it has, he said.

While Ginnie and FHA's programs are there to serve first-time homebuyers,Gormley urged lenders to avoid risk layering.

FHA may allow loans to be made at lower credit scores and higher debt-to-income ratios, but if lenders make such loans there should be strong indications of the ability to repay in other areas, he said.

Gormley and Jones both said HUD has been evaluating advanced credit score models like VantageScore 4.0 and FICO 10T for years and is comfortable with them. The Ginnie Mae chief said he'll be keeping an eye on investor views, but securities interest has been strong to date. 

Both domestic and international demand for Ginnie securities has persisted, with roughly 20% of demand coming from offshore. Gormley said that Asian investors have led among offshore buyers, followed by interest from Europe and Canada. 

Gormley also said that Ginnie is fulfilling its promise to accelerate its long-term plans to transition to loan-level operations to help accommodate servicing transfers. Ginnie's current system has pool level operations. Varying cutoff dates that currently exist will likely need to be aligned in to move this effort forward.

Ginnie also is working on a new version of its acknowledgement agreement that lays out the rights for different parties, working specifically with warehouse lenders on revisions more conducive to servicing advances.

FHA also has been working on initiatives to improve and streamline the way it works with lenders and servicers. One of these involves looking at whether partial claims used to set aside part of distressed borrowers in a second lien due at the end of the loan's term/upon refinancing could be structured more like Fannie Mae and Freddie Mac's first-lien payment deferrals, Jones said.

Under current rules, second lien-based partial claims run into situations where foreclosures involving them need to go through the court system even if they're in a nonjudicial state, Jones said.