By the Numbers
VA servicers have a large influence on refinancing
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Ginnie Mae speeds accelerated in January as lower mortgage rates allowed VA borrowers to refinance their mortgages. But most of the increase was driven by a handful of lenders. Seven VA lenders’ loans prepaid faster than typical, and those lenders pooled 75% of all streamlined refinances this year. The two fastest lenders accounted for nearly 30% of all new streamline refinances. As the multi issuer pools become more heavily concentrated in VA loans, investors may find opportunities in loans serviced by less aggressive VA lenders.
Seven VA lender’s loans prepaid faster than the typical VA loan over the last three months (Exhibit 1). Refinancing activity of VA loans jumped in January and stayed elevated in February and March in response to lower mortgage rates, but the refinance response was muted in FHA and conventional loans. VA speeds increased because VA borrowers were offered much lower rates to refinance than to buy a home and much lower rates than conventional and FHA borrowers. That behavior appears to have been concentrated in these lenders. The two fastest lenders were Village Capital and Freedom Mortgage, whose loans respectively prepaid 79.9% and 64.7% faster than typical VA loans, while the slowest lender’s loans prepaid nearly 65% slower than expected. The absolute speed differences are also large across lenders. For example, Village Capital’s loans prepaid 67.5 CPR while U.S. Bank’s prepaid 13.1 CPR.
Exhibit 1. Servicer prepayment comparison for higher coupon VA loans.
%ΔRef is the percent difference between the “CPR” (actual speed) and “Ref” (reference speed of typical VA loans with collateral characteristics similar to that servicer’s loans), calculated using SMM. Population is 30-year VA loans in 30-year TBA-deliverable pools with original loan size at least $300,000, loan age ≥6 months, and note rate at least 6%.
Source: Ginnie Mae, Santander US Capital Markets.
The reference speed is calculated as part of the Santander US Capital Markets Servicer Ranking report, but this table includes only a subset of VA loans that were more likely to refinance—30-year VA loans with original loan size at least $300,000, at least six months seasoned, and with a note rate at least 6%.
The seven fast lenders accounted for 75% of all VA streamlined refinance loans pooled over the last three months. But these same lenders accounted for only 49% of all purchase loans originated over that time, suggesting that the faster lenders are aggressively pursuing VA borrowers with offers to refinance. The two fastest lenders accounted for nearly 30% of streamlined refinances but only 13% of purchases. And the fastest lender—Village Capital—accounted for 13% of refinance volume but only 2% of purchase volume.
Servicer behavior was generally consistent across all three months, although there were some exceptions (Exhibit 2). Either Village Capital or Freedom Mortgage were the fastest servicer each month; Mortgage Research Center (Veterans United Home Loans) was also very fast in January and February but slowed markedly in March. Quicken’s loans also prepaid quickly, but only in January and March. Aggregate speeds tended to slow a bit in March since mortgage rates have increased, but the relative behavior across servicers didn’t change much.
Exhibit 2. Fast and slow VA servicers over the last 3 months (% faster/slower than the typical loan).
Source: Ginnie Mae, Santander US Capital Markets
Most of the slow lenders were similarly consistently slow. For example, U.S. Bank’s loans prepaid 49.3% slower than typical in March, 67.4% slower in February, and 71.3% slower in January. CMG, Guild, and Movement were similarly very slow in each of the three months. The group of smaller servicers was also quite slow, averaging 44.2% slower than typical over those months.
Ginnie Mae cautioned servicers last week that it is monitoring prepayment behavior and could take corrective action if needed. In 2018 Ginnie Mae temporarily prevented three lenders from delivering loans into multi-issuer pools due to fast speeds. In the meantime, the TBA is likely to deteriorate as more non-VA loans are pooled into custom pools that are not TBA deliverable. Pay-ups for custom pools should increase as this happens. Eventually if the TBA becomes primarily VA loans then some of the slower VA lenders’ loans might become a source of inexpensive prepayment protection.
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