Garnet Capital Advisors Blog

EXCERPT: Ginnie Mae is becoming a lender of last resort for mortgage servicers that are having a tough time advancing principal and interest to investors when borrowers are not making payments.

Businesses that have been shuttering and individuals who have lost jobs due to COVID-19 are looking for financial relief from their mortgage payments, but servicers need some relief of their own.

Many businesses and individuals who have been hard-hit by the current health crisis have become dependent on relief programs provided by their mortgage servicers. But while such relief may help out borrowers, it's putting a great deal of strain on servicers, too.

Lending institutions of all sizes across the US have made valiant efforts to help out millions of Americans impacted by the COVID-19 pandemic, including Fannie Mae and Freddie Mac.  

But the temporary deferral of mortgage payments is posing a real challenge for mortgage servicers. Investors who support access to mortgage credit still need to be paid.

That's where Ginnie Mae comes into the picture.

Ginnie Mae Steps in as Last Resort Relief For Mortgage Servicers

Last week, Ginnie Mae announced that it would be stepping in with a program designed to help mortgage servicers that are unable to make good on their obligations as a result of the current health crisis. Right now, Ginnie Mae backs 29.6 percent of outstanding securities in the agency market.

This is a last resort option for issuers and will help them to continue to provide their services to American homeowners who depend on Ginnie Mae-backed mortgage programs. At the same time, the program will also help ensure that investors receive timely payments of both principal and interest when issuers are unable to make their required monthly payments because of a lack of borrower payments.

The program will provide relief to support mortgage servicers that would typically be offered during times of natural disasters. Through the program, Ginnie Mae will be acting as a liquidity backstop for servicers to handle massive increases in fund advance requests stemming from the coronavirus.

Ginnie Mae is stepping in to help out mortgage servicers that are providing mortgage deferrals to borrowers who are unable to keep up with payments as a result of the coronavirus pandemic.

There will also be a fixed, uniform rate of interest applied to all issuers, which has yet to be specified. The uniformity of the interest rate will ensure that all financial institutions will be treated the same, regardless of size. The rate for financing will be posted on the second business day of every month.

With the entire country battling the COVID-19 pandemic, the issue of financial assistance becomes tantamount, and both borrowers and the mortgage servicers they work with can face trials and tribulations, which is precisely what's happening today. Not only do borrowers need financial relief, but so do the issuers who service them, which is why Ginnie Mae is being sought for assistance as a last resort measure.

Mortgage Issuers and Lenders Urged to Strengthen Loan Portfolios

While the coronavirus curve appears to be flattening in the US, the economy still has a long road of recovery ahead of it. Many businesses and individuals continue to suffer financially as social distancing measures remain in place, and non-essential businesses are forced to keep their doors shut. And with such financial hardships comes a flood of delinquencies on loans and mortgages as people find it difficult to keep up with bill payments.

While Ginnie Mae is stepping in to help issuers, all lenders and financial institutions would be well-advised to revisit their loan portfolios and make the necessary changes required to hedge against risk, especially during such times of economic hardship and uncertainty.

Garnet Capital can facilitate transactions to buy or sell loan assets that will help create much more robust loan portfolios that can weather the storm that the current pandemic has unleashed, as well as any future situations that may arise.

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