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Ginnie Mae- a government-owned corporation that backs FHA, USDA, and VA loans, set off a frenzy about 40-year mortgages. They put out a press release that sent tongues wagging and people wondering, what does this mean for me? People experienced a knee-jerk reaction that government backed lenders would soon be offering new loan products with 40 year terms. Then came a correction in the aptly titled “No, FHA Won’t Be Offering 40 Year Loans.”

According to Sam Wigness of home.com, “Now, there seems to be some clarity on the issue. But unless you speak fluent mortgage-ese, it’s not easy to understand what’s actually happening.” Starting your research on the topic with a digital search online is a great place to start.

Let us break it down for you.

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What is Ginne Mae?

Ginnie Mae is a wholly-owned government corporation that attracts global capital into the housing finance system to support homeownership for veterans and millions of homeowners throughout the country. Ginnie Mae mortgage-backed securities (MBS) programs directly support housing finance programs administered by the Federal Housing Administration, the Department of Veterans Affairs, the HUD Office of Public and Indian Housing and the Department of Agriculture Rural Housing Service. Ginnie Mae is the only MBS to carry the explicit full faith and credit of the United States government.

Mortgage companies like ours, are not associated with any government agencies.

Are 40- year mortgage terms going to be available to me?

Wigness says that “Yes, 40-year mortgage products do exist. But they can be risky for both the borrower and lender, and therefore aren’t widely offered.” And according to the Ginnie Mae press release, there wasn’t exactly a new loan product launched for borrowers, including you. What it did announce was it a new pool of mortgage-backed securities (MBS) for investors to buy and sell. Once a mortgage borrower like you is issued an approved FHA or VA loan, they are typically purchased by Ginnie Mae. This reduces the risk for lenders (like us) and allows us to assure more loans, to more borrowers. The loans are then packaged by Ginnie Mae into MBS and they sell them on the secondary mortgage market. Wingness continues “In the past, Ginnie Mae was limited to buying and selling mortgages with 30-year loan terms or less. But beginning in October, Ginne Mae will introduce a new pool made up of modified loans with terms up to 40 years.”

Loan Officer Ethan Wilson says that “This can all sound really confusing. If you’re unsure exactly what it means, give your loan officer a call or drop them an email. They’ll be happy to help you!” Also, here is an additional list of questions to ask your loan officer, when considering a loan. Click here to see it.

Why 40 years instead of 15 or 30?

As you might expect the COVID-19 pandemic has caused many homeowners in the United States to fall behind on their mortgage payments. The pandemic has caused job loss, small business closures, large businesses going bankrupt, hiring freezes and more. This caused many American households to have less income to pay bills like mortgages.

In a crunch, some of these homeowners turned to loan forbearance while struggling to make payments, so they could avoid forclosure but  this grace period ends for good on July 31. Once the program ends, some still might not be able to make their loan payments. Many people often confuse forbearance for loan forgiveness, and that is not the case.

Wingness says that “One avenue of relief is to modify the length of a 30-year loan and reduce the monthly payments. But lenders may be reluctant to do this since there is no secondary market for loans over 30 years.”

To avoid this, the new pool from Ginnie may gives FHA and VA lenders like us, assurance that modified loans with between 361 and 480 months can be purchased on the secondary market. This then allows lenders more comfortable allowing borrowers to spread lower payments over a longer period of time. This could prove helpful to homeowners who — financially ready or not — must resume making payments.

Not everyone is excited for these new terms

Not everyone is onboard and excited for these new 40-year security pools. Critics point out that underwriting and qualifications for 40-year loan modifications are not fully hashed out yet. They want to know how and when do the unpaid mortgage payments come into play? Do borrowers have to prove COVID-19 related stress to have a loan modified beyond 30 years? Is this fair to prospective homebuyers? There seems to be so many unanswered questions.

New homebuyers might even argue why not let homes foreclose in a market where inventory is low, to give buyers a chance to buy. After all, if a new buyer has the funds to make the mortgage payments, why not let them buy it?

Conclusion

Ginnie Mae is predicting an increase in mortgages modified beyond 30-years. If you think this might apply to you, Loan Officer Michael Joy, suggests “Call your loan officer and ask if this is something that would be available to you. It may or may not be, but it doesn’t hurt to ask. In this case, Ginnie Mae is changing according to the market. The market is fluid and asking for frequent updates from your loan officer is normal.”

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