Background
An ET loan corresponds to a loan modification that lowers a borrower's monthly payments by restructuring an existing 30-year loan into a 40-year term (or some term between 30 and 40 years), thus increasing the likelihood that they can make timely payments in the future. This modification is described as the "last tool" to help a borrower retain their home once other loss mitigation options have failed or when a 30-year modification cannot achieve the target payment (Prior loss mitigation steps include an Advance Loan Modification or a Standalone Partial Claim). FHA only started offering this modification option as of April 2022 but VA and the USDA would under certain circumstances offer borrowers 40-year modifications prior to this date. The introduction of this modification also harmonizes its availability across the Agencies since the GSEs also provide 40-year loan modifications.
It was previously possible to include modified loans in Ginnie Mae Single-Family MBS but the term was limited to 30-years. ET loans have to be pooled together in a new 40-year pool type and are issued under the Ginnie Mae Custom program with a special ET prefix dedicated to them. The first pool in this program was issued in December 2021 and issuance has since then has ramped up to approximately $500mm/month.
Figure 1. Ginnie Mae ET Loan Issuance: Jan 2022-Jan 2024
Source: Ginnie Mae/MachineSP StoryBook
The distribution of this issuance across the underlying government programs (FHA/VA/RHS/PIH) has been dominated by FHA loan modifications after a brief surge of RHS issuance in early 2022.
Figure 2. ET Loan Issuance by Agency: Jan 2022-Jan 2024
Source: Ginnie Mae/MachineSP StoryBook
Prepayment and Delinquency Behavior
The aggregate prepayment rate on ET pools was relatively subdued at less than 5% CPR till March 2023 but more recently we have seen a noticeable pickup to about 21% CPR. As the lower graph in Figure 3 shows, this increase has been driven by an increase in the buyout rate (to about 15-17% CBR) which in turn is driven by a sharp increase in delinquency levels. As witnessed in Figure 4, a staggering 45-46% of ET loans are currently 30 or more days delinquent, testifying to the fact that a substantial fraction of 40-year borrowers are still finding their mortgage payments unaffordable.
Figure 3. ET Prepayments and Buyouts: Jan 2022-Jan 2024
Source: Ginnie Mae/MachineSP StoryBook
Figure 4. ET 30+ Delinquency Rates: Jan 2022-Jan 2024
Source: Ginnie Mae/MachineSP StoryBook
One natural question is to then ask whether this delinquency trend is specific to ET borrowers or spans the other types of modified loans that are pooled in Ginnie Mae MBS: HAMP and non-HAMP. To benchmark behavior, we'll focus on the 2022 and 2023 loan vintages. The two vintages show somewhat dissimilar behavior: the seasoning ramp for buyouts is clearly much higher for ET loans in the 2022 vintages but seems broadly in line with the other modified types in the 2023 vintage.
Figure 5. ET Seasoning Ramp for 2022 Vintage: Jan 2022-Jan 2024
Source: Ginnie Mae/MachineSP StoryBook
Figure 6. ET Seasoning Ramp for 2023 Vintage: Jan 2023-Jan 2024
Source: Ginnie Mae/MachineSP StoryBook
Still, there are quite a few worrisome signs as delinquencies have continued to ramp up in ET loans relative to the other loan modification types in recent months and, unless cured, will lead to relatively higher buyout rates in the future.
Figure 7. Prepayment and Delinquency Rates for ET 2023 Vintage
Accessing ET Loans in StoryBook
We can isolate the population of ET loans in StoryBook by either selecting a term of 40 years or by specifying the pool prefix.
Figure 8. Selecting ET Loans by Term
Figure 9. Selecting ET Loans by Pool Prefix
e is remaining relatively stable at < 5% CPR but given the high delinquency rate (~30% of all loans appear to be delinquent currently), we are starting to see an increase in buyout activity.