Who are the GSEs and Ginnie Mae?
Fannie Mae, the Federal National Mortgage Association (FNMA) and Freddie Mac, the Federal Home Loan Mortgage Corporation (FHLMC) are the established secondary market lenders responsible for the liquidity of the majority of conventional, non-Government, conforming residential whole loans that are originated today and for the past number of decades.
Ginnie Mae, or the Government National Mortgage Association (GNMA) provides liquidity for Government-insured residential mortgages. Those include Federal Housing Administration (FHA), Veterans Administration (VA) and the Rural Housing Administration (RHS/USDA).
For the purpose of this article Fannie Mae, Freddie Mac and Ginnie Mae will be referred to collectively as “Agency” or “Agencies”.
The normal process for new Agency-underwritten loans is to originate them and sell or securitize them directly with the Agencies or sell them to an aggregator that would buy the loans and then deliver them to the Agencies themselves. This often happens if the originator does not have their Agency Seller/Servicer authority. There are also instances where banks and credit unions originate loans and hold them in their portfolios. In some cases, this is because the depository institution does not need the cash that they would receive by selling the loans or the securities in the secondary market and they prefer to hold the loans on their books to capture the yield.
If a bank or credit union decides to sell Agency-originated loans that are currently being held in their portfolio, what are their options?
There are circumstances where these depository institutions decide that they would like to sell loans which were originated under Agency Guidelines, and to put that cash to work in other ways or hold the securities in their portfolio, such as when lenders choose to focus on originating different products or divesting of residential whole loans.
If residential loans were originated under Agency guidelines, an institution can start the process of a seasoned or negotiated sale with the Agencies if they are an approved Seller and Servicer with them.
The Ginnie Mae securitization process with seasoned loans is rather simple. For Sellers with loans that were originated under FHA, VA or RHS/USDA guidelines and are currently insured, they can be securitized with Ginnie Mae. All of the same procedures would apply as if the Seller was securitizing loans when newly originated. There are a few caveats for modified loans or those purchased out of a pool to be -securitized. However, in general, it’s very similar to delivering loans as if newly originated.
Selling seasoned whole loans to Fannie Mae and Freddie Mac is a much different process than selling to Ginnie Mae. These transactions are commonly referred to as ‘Seasoned/Negotiated’ or ‘Bulk’ GSE sales and are normally completed while the Seller is also the Servicer (a/k/a servicing retained). There are, however, occasions where Sellers can sell or securitize loans that are serviced by others (SBO). An example of this would be when banks purchase CRA loans from other lending institutions on a servicing retained basis (where the selling institution retains or “holds” the servicing after the loan is sold) and they decide to sell them at a later date.
The Seasoned GSE Process is as follows:
- Bid data file of clean data needs to be put together to show to the GSE’s for eligibility and pricing. This file would contain all of the data necessary for the GSE to run through eligibility and pricing models
- Data accuracy is of utmost importance since the data that the GSEs use to bid is what the Seller is providing representations/warrants on
- GSE will review the data for eligibility and pricing and provide preliminary eligibility and pricing to the Seller: Generally, the minimum bid size with the GSEs is $10MM (this is negotiable)
If the eligible population and bid are acceptable to the Seller, the following steps would then be followed to complete the sale of the loans to the GSE:
- Obtain all data necessary for selling to the GSE
- Work with the document custodian to ensure certification will be timely
- Work through contracting and variances with the GSE. For a negotiated transaction, a separate contract will be prepared for the sale.
- Load the data into the appropriate delivery system and resolve any data-related issues
- Submit the data in the delivery system
- Work with the document custodian to ensure the pools are all certified
- Settlement occurs on chosen settlement date
When selling to the GSEs, Sellers need to understand that they are providing representations and warrants to the GSE Selling Guides. The difference is that GSEs are looking at seasoned loans and not new production. Seasoned transactions typically consist of loans seasoned anything beyond twelve months. However, 4+ month production loans can be in seasoned transactions as well.
The Agencies have assembled teams that are ready to examine seasoned loans and determine what they can and cannot work within these types of negotiated transactions and have an efficient process that has been in place for decades.
MDS / MIAC professionals maintain longstanding relationships with the Agencies (Fannie Mae, Freddie Mac, and Ginnie Mae) in addition to national mortgage loan servicers and mortgage loan custodians. Our clients are able to leverage these relationships in order to maximize their mortgage loan securitization execution. We utilize the MDS proprietary analytic system to audit and produce data uploads for the delivery of mortgage loan data and MSR data to give buyers and sellers the confidence in the underlying product quality on which they are transacting.
MIAC Perspectives – Fall 2017
Selling Seasoned Residential Whole Loans to the GSEs or Ginnie Mae