APM 26-10: Pooling Eligibility of Single-Family Construction-to-Permanent and Rehabilitation Loans

This All Participants Memorandum (APM) describes the pooling eligibility requirements applicable to different types of single-family construction-to-permanent (C-to-P) and rehabilitation loans and delineates the conditions under which these loans are eligible for pooling. This guidance is effective immediately. 

Please note that there are a variety of naming conventions used throughout the industry to describe loans that are used for the construction of homes. Ginnie Mae will generally use the term “construction-to-permanent” as a blanket term even though some of the loan products identified might not involve a loan modification or might involve two separate closings. In addition, the term “rehabilitation” will generally be considered synonymous with the term “renovation.”

I. Construction-to-Permanent or Rehabilitation Loans that are Immediately Securitizable (CRIS Loans)
Certain C-to-P and rehabilitation loans are eligible for pooling if they close on their permanent terms and if they are insured or guaranteed by the applicable agency, even when the construction or rehabilitation of the subject property has not been completed. These loans will be referred to as Construction-to-Permanent or Rehabilitation Loans that are Immediately Securitizable (CRIS Loans). CRIS Loans must meet all pooling eligibility requirements outlined in Chapters 9 and 24 of the Ginnie Mae Mortgage-Backed Securities Guide 5500.3, Rev-1 (“MBS Guide”). Construction or rehabilitation proceeds must be set aside in custodial escrow accounts and properly accounted for on HUD Form 11720 (see Section V below). 

CRIS Loans include: 

• FHA 203(k) Rehabilitation Loan (purchase or refinance)
• HUD/PIH Section 184 and Section 184A Single-Close Construction Loans (including Skilled Workers Demonstration)
• HUD/PIH Section 184 and Section 184A Rehabilitation Loan (purchase or refinance)
• USDA Single-Close Construction-to-Permanent Loan (“securitized version”) 
• USDA Rehabilitation and Repair with Purchase of Existing Dwelling Loan

Document Custodians must be provided with all applicable documents listed in Appendix V-01 Document Custodian Manual – Chapter 3 (DCM Chapter 3). 

II. Loans Eligible for Pooling After Completion of Construction or Rehabilitation (PACC Loans)
Loans Eligible for Pooling after Completion of Construction or Rehabilitation (PACC Loans) are loans that may be pooled once they are on permanent terms (whether having closed on permanent terms or converted to permanent terms) and are insured or guaranteed by the applicable agency. PACC Loans must meet the pooling eligibility requirements outlined in Chapters 9 and 24 of the MBS Guide. 

PACC loans include:

• FHA Construction-to-Permanent Loan
• VA One-Time Close Construction-to-Permanent Loan 
• VA Loan for Alteration and Repair
• USDA Single-Close Construction-to-Permanent Loan (“interest-only version” with re-amortization after construction is complete)

A conversion from interim financing to permanent financing often involves modifying the loan to its final terms, typically via a modification agreement. 

III. Two-Time Close Transactions
Notably, new construction financing can also be accomplished with two separate, consecutive loans—an interim construction loan and a subsequent permanent loan with a new note. In these cases, the permanent loan is eligible for pooling if it meets the pooling eligibility requirements in Chapters 9 and 24 of the MBS Guide. Per Chapter 24 of the MBS Guide, VA loans involving two closings are typically exempt from any Ginnie Mae seasoning requirements. 

IV. Guidance for Document Custodians
Document Custodians must be provided with all applicable documents listed in Chapter 3 of the Document Custodian Manual (DCM). Notably, modified PACC loans are exempt from the requirement to provide a title policy endorsement or Mortgage Modification Policy (MMP) as long as the loan amount did not increase from the amount on the note. Corresponding changes have been made to Chapter 3 of the DCM. Please note this guidance is applicable immediately, even in instances of recertification where the final certification may have been completed prior to the date of this APM.  

V. Conclusion
To provide additional accuracy and insight into the loan collateral in Ginnie Mae Mortgage-Backed Securities, Ginnie Mae will later provide clarity on any RFS reporting changes in addition to the reconfiguration of HUD Form 11720 to allow Issuers to report all CRIS Loan escrow funds. In the meantime, Issuers should continue using the designated box on the last page of Appendix III-3 (HUD Form 11720) to report Section 203(k) funds. All other CRIS Loan funds should continue to be reported using the “Other” checkbox until further guidance is provided.

The MBS Guide Glossary; Chapter 24 Part 2, Section A(1); Appendix V-01, Document Custodian Manual Chapter 3; and Appendix V-01, Document Custodian Manual Glossary have all been updated to reflect these changes.

If you have any questions regarding the policy changes in this announcement, please contact your Account Executive in the Office of Issuer and Portfolio Management, or email AskGinnieMae@hud.gov.