“[It] would expand liquidity for government servicing through all economic cycles,” Broeksmit said in a statement. “An EBO security addresses the timing mismatch within Ginnie Mae’s program, helping to alleviate an ongoing issue that has concerned issuers and regulators alike. It also has the potential to increase the value of Ginnie Mae servicing, which could translate into lower costs for FHA, VA, and USDA borrowers.”
How the EBO securitization works
Under the proposal, the EBO securitization would focus on loans backed by federal agencies such as the Federal Housing Administration (FHA), Veterans Affairs (VA), and the US Department of Agriculture (USDA).
When borrowers fall behind on payments, issuers are required to buy these loans out of Ginnie Mae pools to stop advancing principal and interest payments to investors. However, holding these non-performing loans can strain the financial resources of IMBs, which often lack the balance sheets to manage such obligations.
The EBO securitization would allow issuers to pool these non-performing loans into a new security that could then be sold to private investors. Investors would receive payments when the loans are resolved, either through borrower repayment, foreclosure, or federal guarantees provided by FHA, VA, or USDA. This mechanism would relieve issuers of the burden of holding these loans while maintaining financial stability in the Ginnie Mae program.
Key benefits
MBA outlined several advantages of the proposed EBO securitization.