The 40-Year Mortgage Pool Doesn’t Mean New Options for Borrowers

Ginnie Mae recently announced a new 40-year mortgage pool for some government-backed loans, but you won’t find them with lenders.


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Late last month, Ginnie Mae sent out a press release detailing the creation of a 40-year mortgage pool to enable lenders to securitize and resell 40-year mortgages. The approval and use of this pool are still contingent on actions by the Federal Housing Authority, Department of Veterans Affairs and other government agencies that back loans, but the announcement led to some speculation that borrowers would soon be able to take advantage of a new 40-year mortgage.

While that may remain a possibility, especially if securitization, packaging and sale of loan tranches is popular in the debt markets, this announcement actually applies to existing mortgages. The arrival of the pandemic, and subsequent efforts to avoid massive foreclosure numbers, pushed almost 10% of existing loans into forbearance. In fact, at this time last year, over 8.5% of all mortgages outstanding were in forbearance, which prompted the Federal Reserve Bank of Atlanta to warn of increasing danger that those loans would ultimately turn into foreclosures.

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Thankfully, that has largely not been the case as lenders, borrowers, and government agencies have all continued to implement repayment plans designed to keep homeowners in their homes. According to the most recent survey from the Mortgage Bankers Association, the percentage of mortgages in forbearance has declined to just under 3.9%. However, that still represents almost two million mortgages nationwide. If those loans were to enter foreclosure they would certainly cool off the red-hot housing market given that the number of homes in forbearance is almost quadruple the number of active real estate listings, per the St. Louis Fed. This, ultimately, leads us to Ginnie Mae’s newly announced 40-year mortgage pool.

The creation of this pool will allow lenders and borrowers to pursue loan modifications that extend a traditional home loan to a 40-year mortgage. By establishing this pool, Ginnie Mae is providing a backstop of sorts which will further incentivize lenders to find alternative repayment options that may not have otherwise been available to borrowers. As you may have learned in the Great Recession, most loan originators do not ultimately own the loans themselves. These are traditionally pooled together and resold in the securities markets.

Those securitization practices encourage the creation of loans but do not incentivize loan originators or loan servicers to ensure that loans remain in good standing. If it’s a government-backed loan, the loan buyer is guaranteed repayment, regardless of a borrower’s ability to continue making loan payments. This new 40-year mortgage pool, coupled with historically low interest rates, should allow the majority of delinquent borrowers to refinance affordably and (hopefully) stay in their homes.

If you saw the headlines and were hoping that the Ginnie Mae announcement meant that you’d be able to refinance into a new 40-year mortgage, that doesn’t appear to be the case. But if you’re a homeowner, you should be pleased that the announcement means a million or more homes won’t suddenly hit the market just as the U.S. economy is gaining steam coming out of pandemic lockdowns.

What was your initial reaction to seeing headlines about Ginnie Mae’s 40-year mortgage pool?

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