Amidst the rising number of mortgage loan forbearances due to COVID-19, Ginnie Mae has stepped in to limit the damage to issuers with its PTAP/C19 program.
The CARES Act provides borrowers with temporary protections in light of the
economic distress caused by COVID-19.
The CARES Act, signed into law on March 27, 2020, includes a series of protections for borrowers whose financial security has been affected by the COVID-19 pandemic. Under Section 4022 of the CARES Act, borrowers with a “Federally backed mortgage loan” who experience financial hardship caused by COVID-19 may request forbearance from their servicer for 180 days. Upon the borrower’s request, the period may be extended another 180 days. Section 4022 also implemented a 60-day foreclosure moratorium for federally backed mortgage loans, which began on March 18, 2020.
COVID-19 has caused systemic complications, including rising unemployment
and shrinking GDP.
The COVID-19 pandemic has damaged the economy, leaving millions jobless. Over 16 million people filed for unemployment benefits in the three weeks leading up to April 10, 2020. It is forecasted there will be a 40 percent decline to second-quarter GDP. Additionally, unemployment is predicted to potentially reach 20 percent by the end of April. Further, the number of grants of forbearances has risen sharply in recent weeks. For example, the Mortgage Bankers Association announced that from March 30, 2020, to April 5, 2020, the percentage of grants of forbearance rose to 3.74 percent of all mortgages, putting the number overall at almost two million, up from 2.73 percent the week prior.
Issuers and servicers remain exposed.
While the CARES Act has provided relief to borrowers, issuers and servicers remain in a precarious position. There undoubtedly will be continuing high numbers of missed mortgage payments, and the pressure will fall on these entities to foot the bill. Generally, servicers are required to advance the principal and interest to investors who own the loan through mortgage-backed securities, when borrowers fail to make monthly payments. The COVID-19 emergency already has caused extraordinary liquidity shortfalls for issuers, putting them in a compromised position.
The long-term effects on the mortgage industry remain uncertain, as “[t]he majority of mortgages originated in the United States mortgage market are securitized into mortgage-backed securities.” As commentators have noted, “[b]ased on the number of federally backed mortgage loans and the unprecedented number and size of mortgage loan forbearances and delinquencies expected, the required advances are expected to far exceed liquidity facilities and cash reserves used by mortgage servicers to fund these advance obligations.”
Ginnie Mae unveils its PTAP/C19 program to assist issuers with shortfalls during the COVID-19 pandemic.
Similar to other issuers, issuers with Ginnie Mae are required to pay the principal and interest to holders of mortgage-backed securities on time, even if borrowers fail to make mortgage payments. On April 10, 2020, Ginnie Mae announced the availability of issuer assistance under its Pass-Through Assistance Program ("PTAP/C19", to help issuers of mortgage-backed securities during the national emergency. Through PTAP/C19, Ginnie Mae will assist issuers in its Single-Family program via pass-through payments to investors in the event issuers are experiencing a “temporary liquidity shortfall.” The shortfall must be “directly attributable to the national emergency.”
Requests for PTAP/C19 assistance and receipt of assistance will not, without more, constitute a basis for default. PTAP/C19 funds may be used only to “cover shortfalls in the [principal and interest] owed to MBS security holders associated with loans that are delinquent, which includes loans in forbearance, as of the date that each request for assistance is submitted.” The funds cannot be applied to other operational or servicing costs. The program is not designed to rectify all solvency issues COVID-19 causes issuers.
Issuers can request PTAP/C19 assistance monthly, on the fifth and sixth business days of the month. The request can only relate to shortfalls for the month the request is made. Detailed guidance on requests, approval, and payment can be found in the Ginnie Mae MBS Guide at Chapter 34, Part 2, Section E. Requests should be made as a “last resort.” For instance, the issuer must provide, in addition to other documents, “[a] signed statement, on the Issuer’s letterhead, articulating the Issuer’s previous efforts in obtaining private financing or other assistance for the subject shortfalls as well as the Issuer’s plan for repaying any funds advanced by Ginnie Mae.” Ginnie Mae will respond to requests at least one business day before the corresponding remittance date.
Issuers will be required to repay in full all PTAP/C19 funds received. Ginnie Mae assistance will bear a fixed rate of interest that applies to a certain month’s pass-through assistance, which Ginnie Mae will post online the second business day of each month. Repayment “will be due on the last calendar day of the month that is the seventh month from the month in which the corresponding investor remittance was made, or on July 30, 2021, whichever is earlier.”
In these uncertain economic times, Ginnie Mae is providing temporary relief, but whether this relief will meet issuers needs will not be known until months after the COVID-19 crisis ends.
If you have any questions, please contact our COVID-19 Task Force.
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