While residential mortgage lenders are facing tough headwinds driven by rising interest rates and low housing volume, the current market presents opportunities for savvy investors looking at mortgage servicing rights (“MSRs”). The current mortgage market is supported by non-bank mortgage originators and servicers who lack the same access to capital and liquidity as traditional banks.

Banking organizations looking to reduce the amount of risk-based regulatory capital required to support residential mortgage loan portfolios can use synthetic securitization to convert the capital treatment of their exposures from wholesale or retail exposures to securitization exposures. In this Legal Update, we discuss how regulatory capital requirements impact banking organizations that hold portfolios of

In early February 2023, as part of its broader mission to support and sustain the financing of affordable single family and multifamily housing for all Americans, Ginnie Mae further refined its focus on social responsibility in the mortgage-backed security (MBS) market by launching an enhanced Low-to-Moderate Income (LMI) disclosure as part of its Ginnie Mae MBS program.  Continue Reading Ginnie Mae Enhances LMI Disclosure, Accommodating Investor Interest in ESG

While many around the world are setting their calendars forward for the year 2023, residential mortgage loan owners and servicers may need to also look backward in time now that New York Governor Kathy Hochul signed the so-called “Foreclosure Abuse Prevention Act” (S5473) into law on December 30, 2022. The new law, which takes effect

As expected, New York has broadened the reach of its new commercial financing disclosure law less than two months after its enactment. S.B. 5470 imposed a range of Truth in Lending-like disclosure requirements on a variety of commercial financing transactions. On February 16, 2021, New York Governor Andrew Cuomo signed S.B. 898 into law, clarifying

Should US state nonbank mortgage servicers be subject to “safety and soundness” standards of the type imposed by federal law on insured depository institutions, even though the nonbanks do not solicit and hold customer funds in federally insured deposit accounts or pose a direct risk of a government bailout? Well, state mortgage banking regulators think

Ginnie Mae’s newly imposed restriction on repooling of reperforming forborne loans yet again penalizes servicers acting as essential service providers in the continuing efforts to protect mortgagors facing financial hardship due to COVID-19. In issuing APM-20-07 on June 29, 2020, Ginnie Mae decided to further protect investors from the potential enhanced prepayment risk resulting from

Today, the Federal Housing Finance Agency (“FHFA”) announced an eagerly awaited policy allowing Fannie Mae and Freddie Mac (the “Agencies”) to address one aspect of the liquidity crisis for mortgage servicers facing mounting advance obligations due to forbearances. Going forward, once a servicer of single-family mortgage loans pooled into an Agency mortgage-backed security has advanced four months of missed payments on a loan in forbearance, it will have no further obligation to advance scheduled payments of principal and interest.[1] The FHFA reports that this applies to all Agency servicers.

This answers one of the four main questions that servicers have asked about forbearance required under the CARES Act in the context of Agency servicing advances. Whether a servicer has to advance for forborne payments is the first question. If so, for how long, is the second question. Third, when will a servicer be reimbursed by the Agencies for such advances. Last, will the Agencies, directly or through the Federal Reserve Board or Department of Treasury, provide a liquidity facility or financing for required advances?
Continue Reading Fannie and Freddie to Relax Servicer Advance Requirements for Loans in Forbearance

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

For many of us who have been around for a while, it seems as if we have seen this movie before.  An economic downturn leads to increased borrower delinquencies on mortgage loans with a progressively increasing obligation for the servicers of those mortgage loans to make principal and interest advances to cover the delinquencies.

But