Why Ginnie Mae MBS Issuance Lagged GSE Issuance During the Pandemic
Summary
The discussion explains why net issuance of Ginnie Mae mortgage-backed securities weakened relative to government-sponsored-enterprise issuance during the 2020–2021 refinancing wave. It argues that pandemic-related economic stress affected Ginnie Mae borrowers more sharply, contributing to a rise in delinquencies. Loans bought out of Ginnie Mae pools then had to be cured and seasoned before they could be pooled again, interrupting the usual recycling of prepayments into new issuance. Different buyout standards and timing at Ginnie Mae and the GSEs also help explain the divergence.
A second factor was reduced cash-out refinancing in government mortgages after FHA and VA tightened loan-to-value limits in 2019. The answer suggests that lenders may also have tightened underwriting during the economic turmoil, while later home-price appreciation coincided with a rebound in cash-out activity. These explanations are qualitative and rely on cited reports and charts rather than a quantified decomposition. The discussion notes that pandemic effects alone do not account for the full pattern, and it does not establish a general rule for issuance in premium environments.
Key ideas
- Pandemic-related delinquency increases among Ginnie Mae borrowers led to more pool buyouts and delayed repooling.
- Buyouts must be cured and seasoned before the affected loans can contribute to new Ginnie Mae issuance.
- Differences in borrower profiles and buyout practices help explain why Ginnie Mae and GSE issuance diverged.
- Tighter FHA and VA loan-to-value limits reduced cash-out refinancing in government mortgages starting in 2019.
- The explanation is qualitative and does not fully resolve how premium environments affect relative issuance.
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Full text
# Why did Ginnie Mae MBS Net issuance decrease significantly in 2020-2021? # Why did Ginnie Mae MBS Net issuance decrease significantly in 2020-2021? Net Issuance of Agency MBS can be thought of as driven by Existing Home Sales, New Home Sales, Cash out Refis, Amortization and Non-Agency MBS runoff. Based on this definition of net issuance, is there a reason why GNMA Net issuance decreased significantly through 2020-2021 (during the refi wave), while GSE Net issuance actually increased significantly through this period? In looking at each of the driving variables it isn't apparent why such a huge divergence occurred (there appears to be a historically wide difference between Conventional net issuance and GN Net issuance during this period). And to just add to this, is there a general trend that emerges between Conventional vs GNMA net issuance in premium environments? ## Answer by Sharad (score 2, accepted) https://quant.stackexchange.com/a/71073 Essentially, because of COVID. As you implicitly point out above, prepayments are usually recycled as new originations but 2020 broke that pattern because of the large number of delinquency-related buyouts in GNMA pools that needed to be cured and seasoned before repooling. To understand the relative difference between GSE and Ginnie Mae net issuance in terms of responding to the initial wave of the pandemic, note that Ginnie Mae borrowers are more levered to the economy than the typical GSE borrower so the initial COVID-related economic downturn in 2020 hit these borrowers the hardest and resulted in a significant spike in their delinquency rates. Also, the GSEs and Ginnie Mae have different standards for buying out loans from pools so for various reasons we are more or less only now starting to see GSE buyout rates ramp up. Pages 13 and 15 in the slide deck below profile some of the trends that are supportive of this interpretation. Ginnie Mae Global Markets Analysis Report Added later As FixedIncomeprof points out in the comments below, COVID is not the entire story -- there's also a significant decline in cash-out activity (as evidenced by the decline in the cash-out share of originations) in government mortgages which more or less commences in 4Q 2019 as a result of FHA and VA tightening LTV limits on cash-out refinancing in August 2019. There may have also been some tightening of underwriting guidelines by originators in response to the economic turmoil of 2020 as cash-out refinances are associated with higher default risk. More recently, there's been a substantial rebound in the level of cash-out refinance activity no-doubt driven by the enormous increases in HPI over the past two years. See p.10 of the Chartbook below for a depiction of these trends. Housing Finance Chartbook
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