Federal Housing Officials Talk Delinquencies, Credit Scoring, Initiatives Underway
(From left: Owen Lee, Joseph Gormley and Matt Jones, by Anneliese Mahoney)
NEW YORK–Ginnie Mae President Joseph Gormley and HUD’s Matt Jones participated in a panel discussion at the Mortgage Bankers Association’s Secondary and Capital Markets Conference May 18, sharing their thoughts on the latest efforts and initiatives from Ginnie Mae and the Federal Housing Administration.
Gormley also currently serves as acting FHA commissioner.
Loss Mitigation and Delinquencies
Jones, who serves as deputy assistant secretary for the office of single-family housing within the Office of Housing at HUD, provided updates on the recent implementation of the new FHA loss mitigation waterfall, which was implemented in October.
Jones said that when the second Trump administration began, there were issues with borrowers going in and out of serious delinquencies and in some cases “taking advantage” of the existing partial claims system. More than 40% of partial claims were being given to borrowers that had already received three or more partial claims, Jones said.
The previous policy–which was put in place during the COVID-19 pandemic as an emergency response–wasn’t intended to be long-term and wasn’t sustainable, he explained. “It exacerbates housing supply problems,” Jones said. “And it exacerbates servicing costs long-term for servicers.”
Jones pointed to the new “one in 24 rule” and trial payment plans, but noted that under the new system, a borrower may still be recorded as seriously delinquent while being evaluated for a home retention option. “Almost the entire amount of that increase in [seriously delinquent] is attributable to that policy change,” he said. “I think what we are starting to see, though, and we think this is a positive indicator, is that the [30- and 60-day delinquencies] are starting to improve.”
“We consider the policy to be working,” Jones said, noting that there are still some technical changes to work through for a change of this magnitude.
Relatedly, Ginnie Mae last week announced the change to delinquency ratio calculations, said panel moderator Owen Lee of Success Mortgage Partners. Lee is also MBA chair-elect. He pressed Gormley on the context for that change.
Gormley stated that traditionally, Ginnie Mae asks for no more than 5% of most issuers’ portfolios to be seriously delinquent at any given time. “Because of the changes that [Jones] described, and the fact that trial payment plan loans are reported as being delinquent,” issuers reported they might be in danger of reaching the 5% thresholds. With that in mind, TPP loans are temporarily removed from the delinquency calculations.
“One of the things we’re hearing from issuers is the cure rates on loans that have gone through the new loss mitigation waterfall are better than anticipated,” Gormley said. “So I think that’s gratifying to us at FHA and Ginnie Mae.”
Credit Scoring
There is currently an update underway to FHA’s underwriting engine to enable submission of FICO 10T or VantageScore 4.0, Jones said, following recent administration announcements.
“We’re optimistic that in the coming months we’ll be able to roll that out broadly to the entire market at the same time, and that’s good for multiple reasons,” Jones said, highlighting the inherent benefits of competition, and the potential to drive down some costs.
As for Ginnie Mae, issuers will be asked to report what credit score model was used, and then that will be added to the disclosure file, Gormley said. “Both these models are widely used in other consumer credit contexts,” he stated. “So I think for our investor community, hopefully it should be relatively seamless.”
What’s next?
Lee referenced recent executive orders from the Trump Administration focused on promoting affordability and reducing unnecessary barriers, asking for examples from FHA.
“Most of the ideas that come from Capitol Hill are on the origination side,” Jones said. “There’s an underappreciation of the servicing-side policy.” With that in mind, FHA is working to improve the assumptions around what it means to be an FHA servicer, and hopefully bring more competition into that space.
FHA also continues to seek policy recissions and aims to align more with the VA on appraisal standards, he said. And, the agency has pursued shifts in residency requirements. “It’s the policy of this administration that we want to prioritize American citizens with an American-citizen-taxpayer-backed insurance fund,” Jones said, noting that there was a notable uptick in non-permanent residents applying for a home mortgage within the FHA program during the Biden administration.
In terms of the supply side, Jones said that there are considerations related to getting rid of the FHA flipping rule, which requires that if you are purchasing a flipped property with FHA financing, you have to wait 90 days from when it was previously sold.
At Ginnie Mae, Gormley highlighted continued work on the loan-level initiative, which will allow loan-level transfers in the program. While figuring out the technical side has been a challenge, “I do think you’ll begin to see as an industry some of the results of that work over the next year,” Gormley said. He also cited aligning to a singular monthly final cutoff date as an important effort. And, Ginnie Mae continues to explore the possible bifurcation of the acknowledgement agreement.
Ginnie Mae is also considering streamlining subservicer requirements. “I think it’s important for us at Ginnie Mae as an organization to continue to diversify our counterparties and incentivize greater participation by private capital,” Gormley said.
