Any day now, maybe even today, Ginnie Mae will announce the details on its Pass-Through Assistance Program (“PTAP”), through which Ginnie Mae will provide a liquidity facility for issuers that need help meeting their obligation as issuers to pass-through payments of regularly scheduled payments of principal and interest, regardless of whether the loans are subject to forbearance.  While quickly trying to finalize PTAP program documents, on Monday April 7th, Ginnie Mae announced that it would recognize servicing advance financing facilities under its Acknowledgement Agreement. Previously, Ginnie Mae would not recognize a servicing advance receivable as  an independent component of mortgage servicing rights related to loans pooled into Ginnie Mae securities (“MSRs”).  This new recognition improves the ability of servicers to finance a valuable income stream, which has proven increasingly costly as the COVID-19 pandemic has greatly challenged liquidity in the housing market. But this recognition comes with limitations, which we detail below.

BACKGROUND

Like Fannie Mae and Freddie Mac, Ginnie Mae permits its servicers, called “issuers,” to grant a security interest in their MSRs to secure a commercial loan. Each also used its version of a master form Acknowledgment Agreement to spell out the relative rights and obligations of the servicer, the secured creditor and Ginnie Mae. Unlike Fannie Mae and Freddie Mac, however, Ginnie Mae does not permit a servicer to grant a security interest in its MSRs to one secured creditor and a security interest in its servicing advance receivables to another; only one Acknowledgment Agreement by servicer is permitted by Ginnie Mae.

This difference in treatment is in part due to the fact that, unlike Fannie Mae and Freddie Mac, Ginnie Mae does not itself reimburse servicers for advances. Servicers instead must instead look to subsequent mortgagor payments and mortgage insurance and guaranty proceeds on the underlying pooled mortgage loans. Moreover, a secured creditor is afforded a very “skinny” cure right, if a Ginnie Mae servicer defaults in its pass-through obligations. If the secured creditor fails to cure the monetary default (within one business day), its security interest is automatically extinguished. Ginnie Mae will neither reimburse the secured creditor for its outstanding debt, either directly or indirectly though net sales proceeds, nor require the successor servicer to remit to the secured creditor reimbursement of servicing advances as and when received.


Continue Reading Modest Improvements: Ginnie Mae’s Servicing Advance Facility Recognition

In this fall edition of our Structured Finance Bulletin, we discuss structuring and legal considerations for multi-jurisdiction trade receivables financing transactions as well as the latest innovations in CLO structures.

We also revisit the European Union securitization regulations and the application in the United Kingdom of the European Union securitization regulations following Brexit and describe the benefits of structuring lending arrangements as repurchase facilities.

Finally, we take a deep dive into the CFPB’s recent proposed debt collection rulemaking and discuss the Japanese risk retention rules and the SEC’s concept release regarding several exemptions from registration under the Securities Act of 1933.


Continue Reading Structured finance bulletin – Fall 2019