In an All Participants Memo dated April 10, 2020 (APM 20-03), Ginnie Mae announced that it revised and expanded its issuer assistance programs in Chapter 34 of the Mortgage Backed Securities Guide (MBS Guide) to include a Pass-Through Assistance Program (PTAP) in response to the COVID-19 national emergency declaration. The program announced in APM 20-03 is for issuers under the single-family program and is effective immediately.

As described in more detail below, the assistance will be in the form of a loan, payable at a fixed rate of interest to cover shortfalls in monthly principal and interest remittances due to bondholders (see “Loan Terms” below). Applications for assistance for April are due today, April 13, 2020, at 11:59 p.m. EST.

Contract Structure

• Issuers will execute an overarching Master Supervisory Agreement, which will govern the terms of the ongoing monthly funding facilities while the crisis is in effect.
• As needed on a monthly basis, issuers will execute a Request for Pass-Through Assistance Related to COVID-19 and Repayment Agreement (“Request and Repayment Agreement”) to cover shortfalls for principal and interest payments for that month.

Conditions for Application

Assistance under PTAP is to be considered an extraordinary measure, for use when other resources have been exhausted and with the requirement of full repayment by the issuer. The request for assistance will not constitute an event of default under the MBS program.

How the Funding is Delivered

After the issuer and Ginnie Mae have executed a Request and Repayment Agreement, and no later than the date the corresponding Monthly Remittance is due, Ginnie Mae shall deposit the approved payment via ACH transfer directly into a central P&I custodial account for the issuer on the date the issuer submitted the Request and Repayment Agreement.

Loan Terms

• Interest Rate: Assistance advanced by Ginnie Mae will bear a fixed rate of interest. The rate that will apply to a given month’s pass-through assistance to all issuers will be posted on Ginnie Mae’s website on the second business day of each month.
• Date of Accrual: Interest on the payment shall accrue beginning on the first business day after the date that Ginnie Mae deposits the payment into the issuer’s central P&I custodial account.
• Maturity Date: The payment, together with interest on the payment, associated with any Request and Repayment Agreement shall be repaid in full to Ginnie Mae on the earlier of (i) the date that is the last day of the month that is seven months from the month in which the Request and Repayment Agreement was approved by Ginnie Mae or (ii) July 30, 2021.
• No Prepayment Penalty: Issuer may prepay all or any portion of the payment, together with interest, at any time prior to maturity, without premium or penalty.

Other Conditions/Limitations on Use of PTAP Assistance

• Issuers can only request assistance for shortfalls caused by loans that are delinquent, including loans in forbearance.
• Issuers cannot use the assistance to cover issuer and operating expenses for servicing.
• If the issuer is using a third party to finance servicing advances, those advances will be subordinate to the issuer’s repayment of the PTAP obligations.
• Issuers must submit monthly MSR valuations and financial and balance sheet statements to Ginnie Mae while the PTAP obligations are outstanding.
• Issuer may not make dividend payments, new loans to related parties, share repurchase transactions, and increases to total cash compensation to executives until the PTAP obligations are discharged. These restrictions apply to benefits, stock options, bonuses, and stock.
• Issuer’s repayment obligations to third parties financing servicing advances on the loans identified in the related Request and Repayment Agreement(s) incurred after the date of the Master Agreement are subordinate to repayment obligations to Ginnie Mae.
  • However, the issuer may continue to use proceeds associated with the loans identified in the related Request and Repayment Agreements in excess of the P&I due to MBS holders and the Ginnie Mae Guaranty Fee to repay third parties financing servicing advances or any other such debt associated with encumbrances on the issuer’s servicing income in accordance with Chapter 21 of the MBS Guide and this agreement.
• Issuer may not assign or transfer any of the pools or loan packages identified under any Request and Repayment Agreement until all funds owed to Ginnie Mae under such Request and Repayment Agreement have been repaid in full, unless the assignment or transfer of such pools or loan packages is approved in writing by Ginnie Mae.

How to Apply

• Address: Applicants for PTAP assistance should submit required documents via email to PTAP@hud.gov.
• Required Documents:
  • An initial application for assistance should include:

1. 1. 1. A Request and Repayment Agreement properly executed by an authorized corporate official identified in the form HUD 11702 for the issuer;
      2. Master Supervisory Agreement; and
      3. A signed statement, on the issuer’s letterhead, articulating the issuer’s previous efforts in obtaining private financing or other assistance for the subject shortfalls, as well as the issuer’s plan for repaying any funds advanced by Ginnie Mae.

• For assistance with subsequent monthly remittances, the issuer will only be required to submit a new Request and Repayment Agreement and any other supporting documentation required by the Master Supervisory Agreement, or otherwise requested by Ginnie Mae.

• Deadline: After April 2020, all requests for PTAP assistance, must be submitted no earlier than the fifth business day of the month and no later than the sixth business day of each month.
• Determination: Ginnie Mae will notify the issuer in writing about its determination to approve or reject the request for assistance no later than one business day prior to the date that the corresponding monthly remittance payment is due.

Key Takeaways

The PTAP program will not relieve all the liquidity pressures. For example, issuers may not use PTAP funds to make regular tax and insurance advances or for other servicing expenses.  Moreover, the program clearly contemplates that issuers will look to their third-party finance partners for support, both as a first option to cover remittance shortfalls and for assistance in funding servicing advances.

Instead, the program is narrowly tailored to relieve the immediate pressure created by bondholder remittances. To make the most of this relief, issuers will need to (1) model expected shortfalls monthly, (2) stand-up monthly reporting compliance, and (3) re-evaluate distribution, compensation, and capital liquidity plans to comply with the program terms.