Issuers should be aware that Ginnie Mae interpreting its MBS guide in a manner that departs from VA circular 26-19-22, and the plain reading of statutory language[1] with respect to the beginning and ending dates used to determine seasoning of VA IRRRLs. These distinctions have resulted in MBS issuers receiving unanticipated Ginnie Mae buy out demands for insufficient VA IRRRL seasoning when refinancing loans with an intervening modification or where refinancing loans where the preprinted note date varies from the actual closing date. Lenders and brokers originating VA loans should also take heed if their correspondent agreements require the loans sold to be eligible for both VA guaranty and Ginnie Mae securitization because this is a rare case where those requirements do not align. In effect, Ginnie Mae has an overlay that could leave VA guaranteed loans ineligible for securitization, and both the VA and Ginnie Mae have more latitude under the statute than they are expressing in their guides.

Ginnie Mae buy out demands have measured seasoning from the first payment due date under the pool, even though its MBS Guide, VA guidance, and the statute all specify measuring from the first payment date on the mortgage being refinanced. Additionally, Ginnie Mae seasoning is measured through the “note date,” where the VA uses “closing date,” and the statute uses the date the new loan is “guaranteed or insured” date. Ginnie Mae policymakers indicated in January 2021 that it will stand firm on its policy to measure through the note date, but that it would reevaluate repurchase demands measured from the MBS pool’s first payment date.

The statutory language imposing seasoning requirements on VA loans at 38 U.S.C. § 3709(c), reads:

“… a loan to a veteran [that is an IRRRL] may not be guaranteed or insured under this chapter until the date that is the later of--

(1) the date on which the borrower has made at least six consecutive monthly payments on the loan being refinanced; and

(2) the date that is 210 days after the first payment due date of the loan being refinanced.” (Emphasis added).

Thus, the borrower must have made six consecutive payments on the underlying loan; and the VA loan guaranty certificate cannot be issued until 210 days after the first payment due date on the loan being refinanced.

The VA Language at Circular 26-19-22, reads:

“(1) Calculating Loan Seasoning. The due date of the first payment is used to determine loan seasoning. A loan is considered seasoned if both of the following conditions are met as of the date of loan closing:

(a) The due date of the first monthly payment of the loan being refinanced is 210 days or more prior to the closing date of the refinance loan; and

(b) Six consecutive monthly payments have been made on the loan being refinanced.” (Emphasis added).

Here, the VA, unlike Congress, ties the 210-day waiting period to the closing of the new loan, not to the issuance of insurance. Nothing in the statute requires this interpretation.

The Ginnie Mae language at MBS Guide Chapter 24, Part 2 § A(3)(d)(ii), reads:

“… a refinance loan insured or guaranteed under the United States Department of Veteran Affairs benefit program in chapter 37 of title 38 of the United States Code is eligible for Ginnie Mae securities only if it meets the following condition.

The note date of the refinance loan is on, or after, the later of:

• the date on which the borrower has made at least six monthly payments on the loan being refinanced; and
• the date that is 210 days after the first payment due date of the loan being refinanced.” (Emphasis added).

Thus, Ginnie Mae’s MBS Guide references the beginning of the 210-day period as the “first payment due date of the loan being refinanced” exactly as expressed by the statute, but as discussed below, Ginnie Mae has demanded buyouts based on measuring the 210-day seasoning from the first payment under the refinanced loan’s current MBS pool. This can affect transactions where the loan being refinanced was securitized after the first payment but is a much greater factor in transactions where an intervening modification was granted on the loan being refinanced. Ginnie Mae has indicated it is reconsidering its policy with respect to intervening loan modifications.

Furthermore, though Ginnie Mae has indicated it will not reconsider this issue, it also measures the close of the 210-day seasoning to the “note date” which is distinguished from the VA’s reliance on the “closing date” and Congress’ requirement for 210 days before the “guaranteed or insured” date.

IRRRL seasoning begins with the first payment due date, but when is that?

Recent Ginnie Mae notices of seasoning violations have demanded buy outs based on the 210-day seasoning being measured from the first payment date of the pool in which the refinanced loan is presently securitized, not the first payment date of the mortgage being refinanced. Under this policy, loans that have been modified less than 210 days before an IRRRL refinance are problematic.

A modified loan’s pool schedule reports the first payment date as the first payment under the revised amortization schedule, but the pre-modification first installment date is also reported. The plain language of the statute and Ginnie Mae Guide suggests Ginnie Mae should measure from the pre-modification first payment date when it exists, and from the first payment date field only when there is no intervening modification.

The Ginnie Mae MBS Guide defines the terms Refinance Loan and Modified Loan[2] specifically for purposes of seasoning requirements. A refinance is made to pay off or satisfy outstanding loan(s). A modified loan “has undergone a rate and/or term modification…” Thus, for purposes of whether an existing loan being modified requires seasoning, Ginnie Mae concluded that a modification was not a refinance and therefore required no seasoning when re-pooled. Arguably, under the same analysis, the first payment due under the loan being refinanced could not be the first payment under the modified amortization schedule, because a pre-modification first payment date on the same loan must exist and be reported to Ginnie Mae.

This firm sent a letter to Ginnie Mae arguing these points in January 2021. As of this publication, our only response has been that its interpretation was being taken under further advisement.

Seasoning ending based on “note date” “closing date” or “insured date”

The question of when seasoning ends is no more clear. Ginnie Mae uses “note date,” the VA uses “closing date,” and the statute uses “guaranteed or insured” date. Ginnie Mae deems the printed date on the promissory note to be the note date, and the VA relies on the closing date. A discrepancy arises between Ginnie Mae and VA when documents are dated as of the preparation date and signed a few days later. Such discrepancies can result in loans insured by the VA being ineligible for Ginnie Mae pools. Because of this, originating lenders should take note and be careful to date their notes the date of closing and not before, particularly if the closing date is close to 210 days from the first payment date (of the current security’s first payment due date).

This firm contends that the closing date, as relied upon by the VA, more accurately reflects the consummation date of the refinanced and is the true note date. The security instrument often has a handwritten date of signing and is always notarized. The note and mortgage constitute one agreement and under the Uniform Commercial Code a handwritten date prevails over pre-printed dates on negotiable instruments. Thus, the actual note date is not the pre-printed date when it differs from the security instrument. Furthermore, strict reliance on the pre-printed note date when it precedes the date signed, can have the absurd effect of declaring a seasoning violation existed before the refinance loan was even consummated.

Congress, on the other hand, never refers to dates the new refinance is made, as the VA and Ginnie Mae have implemented. The plain reading of the statute only requires the refinanced loan’s insurance/guarantee to be 210 days after the underlying mortgage’s first payment due date. Given that VA automatic insurance loan guaranty certificates are typically not issued for weeks after the date of making, the refinance may be fully compliant with the statute even when closed weeks before the 210 days expires. Accordingly, both the VA and Ginnie Mae have more restrictive requirements than Congress required, that arguably deprive veterans of opportunities that Congress authorized.

Ginnie Mae’s position

Ginnie Mae policymakers indicated its decision to use the “Note Date” as the control point in its seasoning rules in lieu of other alternatives was purposeful and was reached after substantial deliberation and would therefore not be reconsidered. However, its determination of the first payment date on the refinanced loan in cases where there was an intervening modification was being reassessed.

Ginnie Mae also expressed that its objective in establishing the seasoning rules was in part to protect bond holders from early liquidation through refinance activity. It argued that from the bond holders’ perspective, the prepayment of a modified loan within a few months after securitization is just as harmful to prepayment rates as the early refinance of a newly originated and securitized purchase loan.

Perhaps by the Spring or early Summer we will have clarification from Ginnie Mae, which will likely be in the form of a revised All Participant Memorandum. Until these questions are resolved, we advise caution and conservative underwriting that ensures six consecutive monthly payments have been made on the underlying loan and that 210 days have elapsed between the first payment in the current pool and before the pre-printed note date on the new IRRRL. Issuers of loans that do not meet these conservative guidelines may receive buy out notices and should discuss with counsel.