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40-Year FHA, VA Home Loans Coming in October?

Ginnie Mae – the funding arm behind FHA and VA loans – created a new “pool type” to secure “modified loans with terms up to 40 years.” It’s essentially the funding groundwork to release a new type of 40-year loan that Ginnie Mae expects to start offering in October.

WASHINGTON, DC – Ginnie Mae announced the creation of a new pool type to support the securitization of modified loans with terms up to 40 years – essentially the groundwork that must be done before offering 40-year home loans to the public, though these are earmarked for homeowners at risk of losing their home.

The current max for pool types is 30-year loans. This new product – to be known as Pool Type C-ET – will allow lenders who service Ginnie Mae programs to offer a loan modification with a lower payment, albeit one that takes longer for the homeowner to pay off.

Once the pool has been established, a 40-year home loan’s use and terms would be set by the groups that rely on Ginnie Mae for funding. Those include:

  • The Federal Housing Administration (FHA, which is under the Department of Housing and Urban Development, or HUD)
  • Office of Public and Indian Housing (PIH, which is also under HUD)
  • Department of Veterans Affairs (VA)
  • U.S. Department of Agriculture (USDA) Rural Development

“It’s important that Ginnie Mae issuers have secondary market liquidity for options that our agency partners determine are appropriate for supporting homeowners in distress,” says Michael Drayne, Ginnie Mae’s Acting Executive Vice President. “Because an extended term up to 40 years can be a powerful tool in reducing monthly payment obligations with the goal of home retention, we have begun work to make this security product available.”

Highlights of the new C-ET pool type

  • It would be a “Custom” pool, having a single loan and $25,000 minimum pool size
  • Eligible collateral will consist of p modified loans whose original terms are greater than 361 months and less than or equal to 480 months
  • All modifications after a mortgage’s origination must be occasioned by default or reasonably foreseeable default
  • There won’t be restrictions on loan amounts, as long as the eligible collateral otherwise meets the requirements set forth by the participating agency.

“The challenges of the last year require meaningful solutions to help keep people in their homes,” says Alanna McCargo, HUD senior advisor to Secretary Marcia Fudge. “As interest rates rise, this 40-year feature will enable more payment reduction options to help homeowners.”

Ginnie Mae expects that the new pool type to be ready by October, although actual use depends on authorization of extended term modifications by FHA, VA, USDA and PIH.

Ginnie Mae is a wholly-owned government corporation that attracts global capital in support of homeownership for veterans and millions of homeowners. It’s the only mortgage-backed security to carry the explicit full faith and credit of the United States government.

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