Both FHA and VA saw measurable declines in the number of seriously delinquent loans during the second quarter, although early-stage default rates were up slightly. A new Inside FHA/VA Lending analysis of Ginnie Mae mortgage-backed securities data found timely payments being made for 93.6 percent of FHA loans and 96.7 percent of VA loans at the end of June. Those numbers were off slightly from the first quarter, when seasonal factors typically lead to the lowest delinquency rates of the year. The increase in late payments was concentrated in loans that were one or two months overdue. There were 419,366 FHA and VA loans in this category at the end of June, up 13.5 percent from the end of March. They represented 4.13 percent of total FHA and VA loans in Ginnie MBS. FHA delinquency rates were substantially higher than those in the VA program, and the number of early-stage delinquencies ... [Charts]

The spring homebuying season fueled a relatively modest increase in production of Ginnie Mae single-family mortgage-backed securities during the second quarter of 2018, according to a new Inside FHA/VA Lending ranking and analysis. Lenders issued $98.66 billion of Ginnie MBS backed by forward mortgages during the April-May cycle. That was up 6.6 percent from the first three months of the year, but 2018 continued to lag behind the pace set in 2017 by 10.7 percent. Given current trends, annual Ginnie MBS issuance in 2018 could fall short of the $400 billion mark for the first time since 2014. The flow of FHA and VA purchase mortgages was up a solid 23.7 percent from the first to the second quarter, bringing the total for the first half of the year to $121.01 billion. However, that was down 4.7 percent from the same period in 2017. Ginnie securitized $75.02 billion of FHA purchase loans in the ... [Charts]

FHA Commissioner Brian Montgomery this week laid out the chief items on his worry list, including high debt-to-income ratios, obsolete technology, and dozens of vacancies caused by a brain-drain at the government’s mortgage insurer.

The credit risk profile of incoming FHA business has shifted significantly since the beginning of last year, according to a new Inside FHA/VA Lending analysis of Ginnie Mae mortgage-backed securities data. The biggest development has been the growth of loans with high debt-to-income ratios. There has also been a significant increase in the share of refinance loans that are cash-out transactions. FHA officials are well aware of these developments, having publicly mentioned them in testimony on Capitol Hill and at industry conferences. Officials have also raised concerns about FHA loans with downpayment assistance, although the MBS data don’t seem to indicate that there has been much change on that score. Among FHA loans endorsed in April and May, only 41.9 percent were at or below the benchmark DTI test for qualified mortgages, which is 43 percent. Through 2015 and 2016, well over half of new ... [Chart]

Ginnie Mae will be working with FHA, VA and the U.S. Department of Agriculture to standardize origination policies and requirements for digital mortgages as it moves into the digital age of its secondary market business. Ginnie will coordinate with the agencies while developing technical standards for electronic closings, digital mortgage instruments and electronic vaults. All this work is part of the agency’s three-year strategy, Ginnie Mae 2020, to modernize its mortgage-backed securities program and platform, strengthen its counterparty risk management capability, and explore new ways to lower or eliminate risk from the system. As part of the modernization effort, Ginnie envisions a process that would allow it to accept digital promissory notes and other digitized loan files as eligible collateral for its MBS. It would encompass loan application through securitization. The plan calls for gradual implementation of ...

FHA purchase loan originations, which comprise the bulk of the agency’s business, declined during the first quarter of 2018 as mortgage interest rates continued to rise. Approximately $34.8 billion in FHA-insured purchase mortgages were made during the first three months, down 13.5 percent from the previous quarter. Purchase originations also fell 12.0 percent year-over-year, data showed. Purchase loans accounted for 71.1 percent of all FHA loans made to consumers in the first quarter. Fairway Independent Mortgage Corp. led all lenders with $880.8 million. This week, the benchmark 30-year fixed-rate mortgage rose by 1 basis point to 4.71 percent from last week, according to Bankrate’s weekly survey of large lenders. Four weeks ago, the rate was 4.64 percent. Over the past 52 weeks, the 30-year fixed has averaged 4.31 percent, Bankrate added. This week’s rate is 40 basis points higher than the ... [Charts]

Ginnie Mae will soon require issuers to undergo stress testing to see if they have the financial strength to withstand adverse circumstances or a severe economic downturn.The agency said it will soon begin phasing in stress testing, which would play a key role in issuer oversight and liquidity. The initiative is part of Ginnie’s effort to enhance the management of counterparty risk, one of the so-called three pillars of progress underlying the agency’s 2020 initiative. In addition to stronger risk management, the initiative aims to make significant technological improvements by 2020 and explore new opportunities to strengthen Ginnie’s MBS program. Issuers that meet the thresholds for required ratings will probably be the first ones to be stress tested, the agency said. Ginnie is also looking for ways to evaluate exposure to a single counterparty, relative to the counterparty’s financial health and the value of ...

Department of Housing and Urban Development Secretary Ben Carson reiterated concerns raised previously by his deputies regarding certain lending trends that could potentially endanger FHA’s financial health. Testifying during a HUD oversight hearing in the House Financial Services Committee this week, Carson said the department is scrutinizing certain policies that may be causing or contributing to the growth of cash-out transactions, unusually high debt-to-income ratios, serious loan delinquencies and early payment defaults. Carson said maintaining the health of the FHA mortgage insurance fund is critical in maintaining the agency as a source of credit for first time, low- and moderate-income, and minority homebuyers. The share of cash-out among all of FHA’s refinance transactions has increased to 60 percent as of April 2018 from 45 percent a year ago, he said. Also during that ...

The mortgage banking industry is backing a legislative proposal that would limit the government’s use of the False Claims Act to pursue hefty damages against FHA lenders. In a recent letter to the bill’s co-sponsors, the Mortgage Bankers Association expressed its strong support for H.R. 5993, the Fixing Housing Access Act of 2018. The MBA noted that originating FHA-insured loans has become very risky in recent years largely due to the civil actions brought by the Department of Justice under the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Fifty-four FCA and FIRREA cases against financial institutions have settled for billions of dollars between July 2011 and January 2018, according to data compiled by the Buckley Sandler law firm. Four cases are pending and one civil penalty award was reversed on appeal. Those lenders who were on the ...

Ginnie Mae has added a new metric to make it easier for approved issuers to track the prepayment rates of single-family loans underlying they have delivered into mortgage-backed securities. The new prepayment metric would enhance Ginnie’s Issuer Operational Performance Profile (IOPP) tool, which was launched in 2015 to help issuers measure their performance against the agency’s standards. The new tool is the latest move by Ginnie to ensure the integrity and market predictability of Ginnie MBS. The prepayment tool will be available to lenders beginning June 25. The announcement follows an agency administrative action last week against three VA lenders that were penalized for cherry picking and refinancing unseasoned VA loans not to benefit borrowers but to charge them higher fees. The lenders – Freedom Mortgage, SunWest Mortgage Co. and NewDay USA – were among nine issuers that ...