In February of this year, the Ginnie Mae II program began guaranteeing securities backed by pools of mortgages previously bought out of Ginnie Mae securities because of delinquency. In order to qualify for these new re-performing pools (known as “RG pools”) a loan must meet two (related) conditions: Borrower has made at least six months of timely payments prior to pool issuance. Pool issue date is at least 210 days from when the mortgage was last delinquent. The novelty of RG pools raises questions about their composition and performance relative to other Ginnie Mae pools. While it remains too early to make many conclusive statements, a preliminary look at the prepayment data indicates speeds somewhere between those of similar vintage Ginnie Mae multi and custom pools, with typical variability from servicer to servicer. In this post, we discuss the prepayment behaviors we have observed over the first seven months of RG pool securitization, issuance patterns, and collateral characteristics. Prepayments Latest September prepayment prints show that RG pools’ speeds generally fell in between those of similar coupon/vintage multi and custom pools. Below charts shows that 2015/2016 3.5% RG pools prepaid at around 37-38 CPR in September, a couple of CPR slower than similarly aged multi pools and almost 10 CPR faster than custom pools. Prepayments for G2 3.5% RG, Custom and Multi Pools by Vintages, September Factor Month Note: Loan level data Below, we plot S-curves for 49 to 72 wala RG loans against S-curves for similarly aged multi and other custom loans from April to September factor months. Speeds for RG loans with 25 to 100 bp of rate incentives have prepaid in mid-30s CPRs (Green line in below figure). During the same period, similar multi pools have prepaid 5 to 8 CPR faster (blue line) than RG pools while similar custom pools have prepaid around 5 CPR slower (black line). We also overlaid a s-curve for 7 to 18 wala G2 multi pools as a comparison (orange line). S-curves for RG, Custom and Multi Pools (49 to 72 WALA) April to September Factor Months Note: Loan level data, orange line is the s-curve for 7-18 wala G2 multi pools with a one-year lookback period Not surprisingly, prepayment behavior differs by servicer. Wells-serviced RG pools that are seasoned 49 to 72 months with 25 to 100 bp of rate incentives appear to be prepaying in low 30s CPRs (black line in below figure). Similar loans from Penny Mac are prepaying 5 to 10 CPR faster, which tends to be the case for non-RG loans as well. S-curves for RG loans by servicers, 49 to 72 WALA, April to September Factor MonthsNote: Loan level data While the re-performing loans that are being securitized into RG pools are already seasoned loans, prepayments have been increasing as pool seasons. For example, one-month old RG 3.5% pools have prepaid at 27 CPR while 6- and 7-month 3.5% pools prepaid at 45-50 CPR (black line below). In addition, overall prepayment speeds for same-pool-age 3.0%, 3.5%, and 4.0% have been on top of each other. Prepayments for RG 3.0%, 3.5% and 4.0% Pools by Pool Age, March to September 2021 Note: only showing data points for cohorts with more than 50 loans Issuance Volume Following a brief ramp-up period in February and March, issuance of RG pools has averaged around $2 billion (and roughly 300 pools) per month for the past five months (see Issuance chart below). The outstanding UPB of these pools stands at nearly $11 billion as of the September factor month. Note: RiskSpan uses reporting month as a factor month. For this chart, we adjust our factor date by one month to match the collection period. RG pools already account for a sizable share of Ginnie II custom issuance, as illustrated in the following chart, making up 18% of G2 custom issuance and 3% of all G2 issuance since April. Note: RiskSpan uses reporting month as a factor month. For this chart, we adjust our factor date by one month to match the collection period. RG Pool Characteristics Nearly all of RG pool issuance has been in 3.0% to 4.5% coupons, with a plurality at 3.5%. As of the September factor month, almost $4 billion (37%) of the outstanding RG pools are in 3.5% coupons. The 4% coupon accounted for the next-largest share–$2.5 billion (23%)—followed by $2.3 billion in 3.0% (20.9%) and $1.3 billion in 4.5% (11.8%). RG Pool Outstanding Amount by Coupon — September Factor Month The following table compares the characteristics of RG pools issued since February with those of G2 single-family custom and multi pools issued during the same period. The table highlights some interesting differences: Issuance of RG pools seems to be concentrated in higher coupons (3% to 4%) compared to issuances for G2 custom pools (concentrated on 2.5% and 3.0%) and G2 multi-lender pools (concentrated on 2.0% and 2.5%). Loan sizes in RG pools tend to fall between those of G2 customs and smaller than G2 multis. For example, WAOLS for 3.5% RG pools is around 245k and is around 50k smaller than multi pools and 30k larger than other custom pools. RG pools consist almost exclusively of FHA loans while G2 multis have a much higher share of VA loans. Almost 98% of 3.5% RG loans are FHA loans. G2 RG vs. G2 Custom and G2 Multi (pools issued since February), Stat as of September Factor Month Wells Fargo and Penny Mac are far and away the leaders in RG issuance, accounting collectively for 62% of outstanding RG pools. RG Pools by Servicer, September Factor Month How to Run RG Pools in Edge Perspective Subscribers to Edge Perspective can run these comparisons (and countless others) themselves using the “GN RG” pool type filter. The “Custom/Multi-lender” filter can likewise be applied to separate those pools in G2SF. Contact Us Contact us if you are interested in seeing variations on this theme. Using Edge, we can examine any loan characteristic and generate an S-curve, aging curve, or time series.