Former Ginnie Mae president Ted Tozer penned an editorial advocating for additional support from the government corporation for independent mortgage banks (IMBs), which included policy proposals for the Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) program.
The Urban Institute’s Housing Finance Policy Center (HFPC) published the piece.
“IMBs have become the new monoline experts in originating and servicing single-family mortgages,” Tozer said in the editorial. “Just as the Hoover and Roosevelt administrations in the 1930s developed programs to allow savings and loan associations and mutual savings banks to obtain stable and inexpensive funding, the Biden administration needs to find solutions to support IMB funding.”
HMBS issuers could benefit from greater support if Ginnie Mae offered an additional path toward funding required buyouts for the program, Tozer said.
“[HMBS] issuers could also use Ginnie Mae–guaranteed commercial paper to fund the Ginnie Mae–required buyouts of loans that have hit their 98 percent maximum claim amount or have become inactive.”
Overall, Tozer lays out a series of five steps in his proposal: first, an IMB funds a closing. Second, it would issue commercial paper collateralized by the closed loan, with funds from its sale “flowing back” to the IMB to replenish working capital.
Third, the IMB would include that closed loan being used as collateral for commercial paper in a new Ginnie Mae security. The fourth step is HMBS-specific.
“When a government mortgage becomes 90 or more days delinquent or is required to be bought out of a [HMBS] pool, the IMB could issue Ginnie Mae–guaranteed commercial paper that would use the bought-out mortgages as collateral for a new commercial paper issuance,” Tozer wrote. “The proceeds from the sale of the commercial paper would be used to buy out the loans from the mortgage-backed security pool.”
Finally, step five says that “when the loan reinstates or a claim is paid by the insuring government agency, the funds will be paid to the commercial paper investor,” he wrote.
In an interview with RMD last month, Tozer discussed a new policy introduced by Ginnie Mae to the HMBS program that now allows for the securitization of multiple participations related to a particular HECM in any one issuance month.
“What Ginnie Mae is doing is they’re letting them take the advances they’re making […] and basically creating the tailpiece of the HMBS multiple times throughout the month,” he said in September. “So at that point, the crediting goes from an unsecured lending [item] to the issuer then actually owning a Ginnie Mae HMBS that is guaranteed by the government.”