Ginnie Mae explains her MBS guide regarding spice VA IRRRLs that are “Adjusted Loan Refinancing”. Issuers challenged Ginnie Mae’s purchase orders who claimed insufficient spice when measured from the first payment date of a staggered loan adjustment, despite being seasoned enough from the first payment under previously amended loan terms. With this APM and accompanying changes to the MBS Handbook, Ginnie Mae is reasserting her position on those demands, but the future actual date offers some relief.
In a previous article, I explained that issuers were challenging Ginnie Mae requisitions that measure spice from the first payment due date under the recompiled amendment. We have argued that the MBS Guide and the specific statute measure from the date of first payment on a “loan being refinanced” and that the down payment on the refinanced loan was the original payment of the principal loan, and not the down payment under Ginnie Mae’s repackaged guarantee. We expressed in our previous article that the guarantee may be backed by a loan, but the guarantee does not change the terms of the loan, even if the loan is modified and regrouped.
With APM 21-06 Ginnie Mae responds by announcing amendments to its MBS Manual that come into effect on January 1, 2022, that reaffirm its practice of measuring the spicing of the Amended Loan Refinancing from the first repayment date under the MBS of the Amended Loan. Pool. To achieve this, it redefines what constitutes a loan for securitization purposes under the MBS Guide.
The following relevant changes to the MBS Handbook were announced at APM 21-06:
- Define a rate of a modified loan, adding: “In consolidation, modified loans are considered new loans and are judged according to the modified terms under which the loans were pooled..“
- The new term “Refinancing Modified Loan” which means “A refinancing loan used to pay off a modified loan…”
- He stated with a statement that “Except as noted below, Any modified VA loan refinance loan is subject to the spice requirements…”
- An express statement that ‘modified loans are not subject to spice requirements[s]…”
Additionally, APM 21-06 states that:
- “On consolidation, the modified loans are new loans and the modified terms are the basis on which the loans are pooled.”
- “Since a modified loan that is being refinanced is considered a new loan based on the modified terms, the modified loan must be seasoned prior to being refinanced and pooled into a Ginnie Mae MBS.”
Taken together, what may seem innocuous at first glance, is an important declaration that a modified loan is its “type of loan” And although the refinancing loan itself is not subject to spicing, it becomes equivalent to a refinancing loan to determine the down payment for spicing when it is refinanced. In other words, The sampling period for the modified loan refinance will not consider the down payment on the loan being refinanced, instead it will only look at the down payment on the principal modification.
Ginnie Mae guarantees mortgage-backed securities, and for that purpose, she has consistently expressed that her spice rules are intended to prevent early liquidation through refinancing and that prepayment of a modified and regrouped loan is detrimental to prepayment rates such as refinancing a newly created and approved purchase loan in Money bills. Its purpose remains obscure due to its historical position that the protection of the MBS pool was due to the spice being measured from the date of the first payment under the pool, rather than the date of the first payment in the loan documents. Ginnie Mae would have simply said the seasoning is measured from the first batch under the pool.
On closer inspection of the first change in the MBS Handbook and the APM 21-06 statement referenced above, we see both references have a “on compilation” effect. Amendments are “new loans and are judged according to the amended terms under which the loans were pooled.” Or, as stated by the APA, “the amended terms are the basis on which the loans have been pooled.”
However, a simple reading indicates that “modified terms” will be determined at the time of assembly and form the basis for the identification of spices. That is, the first payment under the revised consumption schedule will be the starting date for the determination of spices. But this goes against Ginnie Mae’s observed practice of identifying spice from the date of the first push under the pool. To substantiate the historical practice of Ginnie Mae, the more difficult reading requires ‘on collection’ and ‘under which the loans were collected’ to ignore the written terms of the amendment and take the next first installment within the collection.
It seems natural to assume that the terms of the modified loan supersede the terms of the original loan, and these terms are the terms set forth in the modification agreement in writing, which are not controlled by the compilation date or the Ginnie Mae guide. But as expressed above, Ginnie Mae determines the terms of issuing a security guarantee, not whether the veteran qualifies for a modification or even qualifies to refinance a loan modification. VA may warrant IRRRL even if Ginnie Mae determines she is ineligible for her MBS gatherings.
Accordingly, APM 21-06 does not fully clarify the questions that issuers are asking regarding the timing of the seasoning. Ginnie Mae has not stated clearly and unequivocally whether, in cases where payments on a pre-issuance loan modification have been received in a new pool, will depend on the spice on the date of the first payment as indicated in the loan modification documents or down payment under the pool. The question itself seems to remain unanswered regarding the spices of unadjusted loans. And if the answer is based on the down payment under the pool, Ginnie Mae did not clearly explain how a veteran lender or original lender could know that date to understand when they would be eligible to refinance a loan that could be included in an MBS with a pool guarantee by Ginnie Mae.
The second quotes from APM above are a bit confusing. What Ginnie Mae says is that because the modified loan is considered a new loan to determine if its refinance is properly seasoned, the modified loan seasoning does not take into account any payments or time that occurs before the modification.
Finally, the APM states, “Ginnie Mae removes language in Chapter 24, Section A(2)(c) to allow the loan modification date to be used as the creation date for the compilation. According to Appendix III-07 to this guide, the loan creation date must be the bond date or the date on which the loan was created. However, the only relevant reference in the class. 24 Part 2 § A(2)(c) remains in the MBS Handbook. It states: “The loan modification date may be used as the creation date for the purpose of compilation.” The text allows lenders to respect APM’s clear intent to use the date of the original notice, or the date on which the loan was created.
However, given that:
- The language of the APM states: “Adjusted loans are new loans and the modified terms are the basis on which the loans are pooled,” and
- The language of the MBS Guides states: “Modified loans are considered new loans and are judged according to the modified terms under which the loans were pooled;”
It is not clear whether the APM’s statement that “the date of creation of the loan shall be the date of the note, or the date of the creation of the loan” refers to a pre-adjustment or post-amendment date.
In APM 21-06 Ginnie Mae acknowledges the confusion that has existed about IRRRL loans representing refinancing of a modified loan. It amends MBS Guide definitions to support its position that Spice requires six payments and 210 days after the first repayment date of a rate loan in a secured pool.
APM is not clear whether the first payment date for the spice account will depend on the first payment mentioned in the amendment documents or the first payment date within the batch. We believe that Ginnie Mae is reviewing MBS evidence to substantiate its pre-existing policy and delay its effect until January 1, 2022. Accordingly, we assume that Ginnie Mae will continue to count spices from the first batch under the pool, although we’re not sure how Ginnie Mae expects that one Seasoned lenders or a third party will learn the first payment history under the pool prior to construction.
Lenders must re-examine and implement any revised underwriting standards and operating practices no later than January 1, 2022. Thereafter, quality control must ensure issuers have made six consecutive monthly payments on the principal loan and that 210 days have elapsed between the first payment and the date of creation or note date The new IRRRL. We recommend a conservative approach that is measured from the first date under the pool until the date of creation or the date of observation whichever comes first. In the event of an error resulting in an imminent error, the VA’s guidelines may be more lenient allowing the loan to remain secured by the VA, while ineligible for pooling in Ginnie Mae’s financial papers.
 38 USC § 3709(c)(2); MBS Chapter Handbook. 24, Part 2, § A(3)(d)(2).
 This article is not exhaustive of the contents of APM 21-06 and should not replace your own reading of the APM and changes to the MBS Handbook.
 MBS Chapter Handbook. 24, Part 2, § A(2).
 MBS Chapter Handbook. 24, Part 2, § A(3)(d)(3).
 These exceptions include: non-mortgage debt refinancing loans, mortgage refinancing loans without scheduled monthly payments, and construction loans for permanent financing. MBS Chapter Handbook. 24, Part 2, § A(3)(d) (VII) – (IX).
 Where (d) (i) in effect for MBSs secured between June 1, 2018 and July 31, 2019, and (d) (ii) in effect on MBSs secured on or after August 1, 2019. MBS Guide Ch. 24, Part 2, § A(3)(d) (1)-(2), (6).
 MBS Chapter Handbook. 24, Part 2, § A(2).