By the Numbers
Ginnie Mae buyout risk rising
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Delinquencies on FHA loans have accelerated since the start of 2022 and FHA loss mitigation efforts did not keep pace in 2024. The growing balance of delinquent loans raises the possibility that lenders will start buying these loans out of Ginnie Mae pools, as FHA rules allow. This would lower the value of pools priced above par, especially if non-banks become more aggressive at conducting early buyouts. Some pools have rates of 60-day or longer delinquencies of over 10%, Discount pools, however, could benefit if borrowers who can no longer receive partial claims are forced to move and prepay the loan.
The effect of buyouts, if servicers were to efficiently exercise their early buyout option, could remove $0-21+ or more of value from premium G2SF pools (Exhibit 1). This table shows the change to pool value if servicers buyout all loans as soon as they are eligible. For example, the representative 7.0% pool would lose 10/32s if the 10.9% of loans that are at least 60-days delinquent were bought out at once. The pool would lose another 11.5/32s if servicers were to buyout loans fast enough over the next year to match the pace of new delinquencies over the past year, which is roughly 3x faster than Yield Book’s model is currently projecting.
Exhibit 1. Change in value to premiums G2SF if buyouts accelerate.
As of 2/26/2025.
Source: Ginnie Mae, Yield Book v97, Santander US Capital Markets.
The table uses loans delinquent 60 days or more, while the servicer’s buyout option starts on loans that are 90-days delinquent. But a 60-day delinquency can become 90-days delinquent in the current month and immediately be bought out. For an investor, any 60-day delinquent loan is at risk of buyout.
Bank servicers are typically very efficient at buyouts of delinquent loans in pools priced above par. Non-bank servicers were less likely to exercise that option than banks during Covid, since they had to finance the pool for at least six months before re-pooling and the loan could only be sold back into custom “RG” pools that were not TBA-deliverable. Ginnie Mae has since changed those rules. Now the servicer only needs to hold the loan for three months before re-pooling, and the loan can be sold into TBA-deliverable multi pools. That may allow more non-banks to exercise their buyout option in premium priced pools.
Some cohorts have FHA delinquency rates over 10% (Exhibit 2). The highest delinquency rates are generally in 2021 and 2022 vintage cohorts, likely because many of those borrowers bought near the pandemic’s home price peak.
Exhibit 2. Percent of FHA loans are least 60 days delinquent.
Source: Ginnie Mae, Santander US Capital Markets.
The excess returns for most Ginnie Mae TBA are like the same-coupon conventional TBA (Exhibit 3). Therefore, the enhanced buyout risk for Ginnies suggests that investors should prefer conventional MBS to Ginnie Mae MBS. Conventional MBS does face some added uncertainty from the rumblings that the government will try to privatize the GSEs, but the risk of that seems less likely than the risk of faster Ginnie Mae buyouts.
Exhibit 3. G2SF and FNCL projected excess returns are similar over the next year.
Source: Ginnie Mae, Yield Book v97, Santander US Capital Markets.
The FHA delinquency rate jumped higher over the latter half of 2024, from a combination of more delinquencies that wasn’t matched by more loan cures (Exhibit 4). The dark blue bars show the dollar amount of new ≥60-day delinquent loans each quarter, and the light blue bars show the dollar amount of delinquent loans that cure or prepay. The gap jumped wider this year as cures did not keep pace with new delinquencies. This points to more stress on the borrower and a greater likelihood that a loan will prepay because a borrower is forced to move, or the lender forecloses on the loan.
Exhibit 4. Cures and prepays lagged new delinquencies in 2024.
Source: Ginnie Mae, Santander US Capital Markets.
It is possible that more new defaults consist of borrowers that have already received FHA loss mitigation, whether during Covid or after Covid, and lenders are deciding that another partial claim will not help the borrower. Or borrowers may not qualify for another partial claim. Prepayment and buyout rates have stayed low; most of the cures have been from borrowers that transition back to current. This should be a positive development for discount pools since these borrowers otherwise have even more lock-in than a typical discount borrower.
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