By the Numbers
From delinquencies to buyouts in Ginnie Mae MBS
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
The recent pickup in delinquencies in Ginnie Mae MBS has raised the specter of delinquent loan buyouts. While buyouts hurt the value of MBS priced above par, they can lift the value of MBS priced at a discount to par. A pool with more delinquencies is likely to face faster prepayments from buyouts, but some collateral tends to prepay faster once delinquent. Delinquent loans with small loan sizes tend to prepay much faster than loans with large sizes, which lifts the value of low loan balance pools. And pools backed by low loan balance loans from Florida should be especially valuable, since Florida has one of the highest delinquency rates in the nation. Loans that have high current LTVs also tend to have high delinquency rates and high buyout rates.
Delinquent VA loans prepaid faster than FHA or Rural Housing Service loans since the start of 2023 for loans with no refinance incentive. In the FHA program, loans with these attributes typically prepay faster when delinquent:
- Loans with credit scores over 750
- Loans with original balance below $200,000, especially below $100,000
- Loans with LTV below 50% and above 90%
- Modified loans
- Cash-out refinances
- Repeat home buyers
- Borrowers that did not receive down payment assistance
The details follow.
Impact of loan program
Buyout rates tend to be higher for VA loans than FHA or rural housing service loans (Exhibit 1). This shows the average buyout rate assuming a pool is backed by 10% delinquent FHA loans, or by 10% delinquent VA loans, or by 10% delinquent RHS loans. This makes it simple to apply the speeds to real pools. For example, a pool with 10% delinquent FHA loans would be expected to have buyouts contribute 2.3 CPR to its overall prepayment speed, while a pool with only 5% delinquent FHA loans should only receive a 1.15 CPR contribution from buyouts. And a pool with 5% delinquent FHA loans and 5% delinquent VA loans would expect buyouts to contribute 3.3 CPR (50% of 2.3 CPR + 4.3 CPR).
Exhibit 1. FHA, VA, and Rural Housing.
Performance from January 2023 through February 2025. Modified loans are excluded.
Source: Ginnie Mae, Santander US Capital Markets.
The exhibit makes a few simplifying assumptions. Buyout rates typically ramp higher the longer a loan remains delinquent; the chart shows the average speed. It assumes a constant 10%. Loans that are at least 60-days delinquent are considered non-performing. And any prepayment of these loans is considered a buyout; it does not matter to the investor if the loan is bought out because the delinquent borrower was able to sell the property, received a loan modification, or entered foreclosure. Only loans with no rate incentive are included, since those loans are unlikely to be targets for early buyouts by servicers.
FHA and credit score
The largest population of delinquent loans in Ginnie Mae pools are FHA loans, so some investors may appreciate a deeper look into how buyout rates vary with different collateral attributes. Loans with higher credit scores tends to have higher buyout rates than loans with low credit scores (Exhibit 2). However, the difference is small, and not many loans over 750 FICO are delinquent. Buyout rates are similar below 750 FICO. The exhibit assumes pools that have the same 10% delinquency rate, but real pools with low FICO borrowers will usually have higher delinquency rates and therefore higher prepayments from those loans.
Exhibit 2. Original credit score.
FHA loans. Performance from January 2023 through February 2025. Modified loans are excluded.
Source: Ginnie Mae, Santander US Capital Markets.
FHA and loan balance
Low loan balance pools exhibit faster prepayments once delinquent than higher balance pools (Exhibit 3). Pools under $100,000 have delinquent prepayment speeds close to 66% faster than for pools over $600,000. Delinquency rates tend to be similar across loan sizes, so the buyout rate difference will tend to add value to low loan balance pools.
Exhibit 3. Loan size.
FHA loans. Performance from January 2023 through February 2025. Modified loans are excluded.
Source: Ginnie Mae, Santander US Capital Markets.
FHA and current LTV
Loans with high mark-to-market LTVs tend to prepay faster than borrowers with lower LTVs (Exhibit 4). These borrowers also tend to have higher delinquency rates, so high LTV pools are likely to contain many loans with a propensity to prepay quickly. There is also a pickup in speeds from borrowers with less than a 50% LTV; those borrowers are probably motivated to sell the home to access the built-up equity.
Exhibit 4. Current LTV (mark-to-market with Case Shiller).
FHA loans. Performance from January 2023 through February 2025. Modified loans are excluded.
Source: Ginnie Mae, Santander US Capital Markets.
FHA and loan purpose
Modified loans and cash-out refinance loans used to extract equity tend to prepay faster after entering delinquency (Exhibit 5). Modified loans that re-default are less likely to be curable so eventually those loans will have to prepay. And cash-out refinance borrowers may be borrowers in weaker financial situations. Modified loans can have delinquency rates approaching 40% in recent vintages, so prepayment speeds from buyouts can be significantly faster than indicated in the exhibit below.
Exhibit 5. Loan purpose.
FHA loans. Performance from January 2023 through February 2025.
Source: Ginnie Mae, Santander US Capital Markets.
FHA and first-time home buyer
Non-performing repeat home buyers tend to prepay about 0.5 CPR faster than non-performing first-time home buyers (Exhibit 6). Delinquency rates tend to be similar in newer vintages, meaning that repeat buyers have an edge in adding value to discount pools from buyouts.
Exhibit 6. First time home buyer.
FHA loans. Performance from January 2023 through February 2025. Modified loans are excluded.
Source: Ginnie Mae, Santander US Capital Markets.
FHA and borrower down payment assistance
Borrowers with down payment assistance tend to prepay a little slower in delinquency than borrowers that did not receive assistance (Exhibit 7). But borrowers that received assistance tend to be more likely to fall behind on payments, and that is a larger effect than the buyout rate difference.
Exhibit 7. Down payment assistance.
FHA loans. Performance from January 2023 through February 2025. Modified loans are excluded.
Source: Ginnie Mae, Santander US Capital Markets.
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