7/28/2019 GNMA's Third Party Agreement With MBS Issuers

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The function of gnma is to guarantee / insure FHA and VA loans for thebenefit of the lender. With the advent of securitization, it appears GNMAhas made a new contract with the MBS issuers which impacts the insurance /guarantee, and the duties of the issuer. In short, the issuer is to makeand keep the investors whole.The issuers may then benefit from GNMA's guarantee or insurance.

From GNMA:

"In the Ginnie Mae program, Issuers are financially responsible for theirsecurities, even if the underlying mortgage collateral becomes delinquent."

jg: so the issuer of securities remains liable ("responsible") for paymentto the investors on the securities it issued. If that's true, then the issueris primarily liable to the investors, not the borrower, by way of an(legally?) intervening 3rd party agreement.

"While the GSEs are responsible for the financial losses related to the loansin their investment portfolios and MBS, the Ginnie Mae Issuer must makeprincipal and interest pass-through payments to investors for delinquent loans,as well as provide the funds to re-purchase loans to foreclose on a home ormodify a loan."

jg: the issuer must 1) continue payments to the investors on the securities and2) repurchase the loan to a) foreclose or b) modify. This says to me thattrusts should never be the foreclosing party on FHA or VA loans, if notFNMA of FHLMC ("GSE") "securitized" loans.

"Ginnie Mae Issuers are responsible for any unreimbursed costs associated witheither violating insurers' servicing guidelines or for inadequate insurancecoverage. This requirement provides a strong incentive for private institutionsto make better quality mortgage loans."

jg: not sure what all this means.There is something GNMA won't cover to issuers, but it's not clear just what

that is, though my speculation is cited below.

"It is important to note that Ginnie Mae does not have a financial obligationto MBS investors unless the Issuer becomes insolvent."

jg: GNMA's guarantee is not to the investors unless the issuer is insolvent.ONLY if the issuer becomes insolvent, GNMA's guarantee passes to the investors.The guarantee is to the issuer, whom to get the benefit, must repurchase theloan to modify or foreclose and THEN GNMA's insurance or guarantee will kickin TO THE ISSUER. So it appears that without repurchasing as is contractuallyrequired, the issuers instead use the credit bid of a trust to get the collateralby showing the trust as the foreclosing party or sell at the foreclosure

sale to a third party. Whether or not the issuer then passes the gnma guarantee/insurance monies to the investors is unknown, at least to me(the investors were to have been made whole by repurchase before then and aren'tbeing, would be my thought). To get around their contractual obligation with GNMA,issuers rely on poss of an alleged original note by the trusts for the trustsrights to enforce the notes in their own right. The contract between the issuers

7/28/2019 GNMA's Third Party Agreement With MBS Issuers

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and GNMA is being violated in one ruse after another. And If the investors don'tultimately benefit from GNMA's guarantee / insurance, it is further heinouslycriminal imo.GNMA has never purchased loans nor do they hold original notes. A copy ofcertain documents from the loan file (which was presumably underwritten to FHAand VA guidelines)* are sent to FHA or VA, who then issues a certificate ofinsurance (FHA) or one of guarantee (VA) to the party who tendered the documentsfor the insuance or guarantee. If not for the contract between the issuers andGNMA, the guarantee or insurance would or at least should inure to the benefitof the current lender (he who has a properly negotiated note and assignment ofthe coll instrument). Further, it's my understanding that GNMA will only respondto claims made by GNMA approved servicers. I have seen them (FHA) tell anunapproved servicer, who should be making the claim on these particular loansfor the issuer who repurchased the loans) to eat a rock for lack of that approval.

*there may be times when GNMA has refused guarantee or insurance on a loan if,say, a spot audit found the loan was a piece of crud not underwritten to theirguidelines, and that may be the part referred to above (or that the loan is beingserviced by a non-approved servicer).

The impact on an intervening agreement by third parties, such as that of GNMAwith the Issuers, to these notes is another story altogether.

These are as always lay opinions. The verbage prescribed above to GNMA inparens was taken from GNMA's website March 2013.