Table 2 shows the top 10 VA lenders (by loans guaranteed) for Fiscal Year 2021—this group accounted
for 47 percent of Ginnie Mae’s VA production that year. The fact that only the last two lenders in the
group are depository institutions highlights the long-running shift in government loan origination and
servicing that has resulted in market share increases for non-depositories.
3
While this trend has been
beneficial in some respects, the fact that non-depositories are heavily dependent on external funding
means that liquidity issues will become increasing important as economic stresses increase. This was a
primary driver of Ginnie Mae’s August 2022 revision of financial eligibility standards for issuers, which
are more targeted to financial risk and therefore help support issuers’ ability to obtain financing across
economic cycles.
Analysis. Liquidity in the market for VA loans securitized through Ginnie Mae remains strong. In recent
years the market has been able to accommodate continued program growth but also the dramatic
transition of the portfolio to lower interest rates via broad-based refinancing (as occurred across all the
agency securitization programs). Looking at the period beginning in 2019, the VA share of the total
Ginnie Mae portfolio has grown in every quarter except the most recent.
The swings in refinance activity in the VA program were extraordinary, but reflective of the interest rate
situation that affected all agency mortgage production. The VA cash-out program that was the subject of
the 2018-19 Changes maintained steady absolute levels during the period of this report (as a smaller
share of the greatly expanded total refinance volume during this time), with an increase in activity
coming in recent quarters. As shown in Figure 3, the portion of VA production that is cash-out is much
higher than with FHA production except during the peak of the recent refinance wave.
Ginnie Mae does not have data that allows it to isolate and evaluate the impact of the cash-out
refinance requirements that were implemented by the VA in December 2018 (which included net
tangible benefit and recoupment standards).
In a May 2019 Request for Input, Ginnie Mae articulated its concern that prepayment activity
uncorrelated to economic conditions was negatively impacting investor confidence in its securities, and
in a December 2019 APM followed up by prohibiting the securitization in multi-issuer pools
4
of cash-out
refinances in excess of 90 percent as means of preserving homogeneity of loan characteristics and
performance in these pools. Since that time, approximately 50,000 such loans (totaling approximately
$17 billion) have been securitized through Ginnie Mae custom pools, as was permitted when they were
rendered ineligible for the multiple issuer pool program. The existence of a small but active
securitization market for these loans, plus the stable VA cash-out refinance volume since that time,
indicate that this restriction has not significantly affected general program liquidity.
The more significant impact for Ginnie Mae of the 2018-19 Changes has been the seasoning
requirement imposed on VA refinance loans. The requirement, stemming originally from 2018’s Public
Law 115-174
5
, has achieved its intended effect of reducing the immediate refinancing of VA loans, but
has also proven challenging for industry to operationalize with precision and for Ginnie Mae to enforce –
in the latter case, because of the inability to preclude non-compliant loans from being pooled up front.
8
3
The trend exists in the conventional (non-government) segment as well, though at lower levels.
4
Multi-issuer pools permit the contribution of loans from many different issuers into a single pool and are Ginnie
Mae’s most heavily used security products.
5
The Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155 / P.L. 115-174)