Securitized Spotlight: Nothing so Permanent

TCW argues that the FHA’s supposedly temporary COVID-era relief machinery has become effectively permanent, worsening Ginnie Mae MBS convexity and justifying an underweight position.

• FHA 30+ day delinquency is 11.4%, versus 1.3% for conventional mortgages; it rose 103 basis points over the past year, compared with 7 basis points for conventionals.
• FHA borrowers account for 55% of all seriously delinquent mortgages, while the 90+ day delinquency rate increased from 3.5% in September 2025 to 5.3% in August 2026.
• The Payment Supplement, introduced in 2024, extends the workout process: borrowers must complete a three-month trial payment plan, while permanent options are limited to one every 24 months; FHA cure rates have consequently fallen and the redefault rate is approaching 60%.
• One issuer repurchased about 80% of its eligible delinquent loans in a single month and reached a 26 CDR, creating unpredictable prepayment risk because loans are bought out at par even when premium pools trade above par.
• Custom pools now represent 38% of Ginnie supply, versus 13% before the pandemic, while CMO issuance exceeds $20 billion per month; Ginnie Mae MBS have underperformed conventionals in every five-year window over the past two decades, by as much as 218 basis points.

Takeaway: TCW favors conventional MBS over Ginnies because policy-driven delinquencies, buyouts and collateral migration have structurally weakened Ginnie convexity; investors should demand a wider spread premium before adding exposure.