MBA Shares Concerns with Ginnie Mae on Eligibility Requirements for Single-Family MBS Issuers
The Mortgage Bankers Association shared recommendations and concerns with Ginnie Mae regarding proposed changes to eligibility requirements for single-family mortgage-backed security issuers.
“MBA consistently has supported robust financial eligibility requirements that help ensure Ginnie Mae issuers are able to withstand idiosyncratic market dislocations or periods of broader economic stress,” said MBA President and CEO Robert Broeksmit, CMB, in a letter to Ginnie Mae Acting Executive Vice President Michael R. Drayne. “A well-calibrated set of requirements should promote safety and soundness while not unduly restricting issuer participation and growth or raising the cost of credit for consumers.”
The letter in response to a Ginnie Mae Request for Input noted the Ginnie Mae proposals related to liquidity and net worth “are constructed in a manner that could achieve this balance,” though they need some targeted adjustments.
“MBA has significant concerns, however, regarding the Ginnie Mae proposal related to a risk-based capital ratio requirement,” Broeksmit said. “This proposed requirement–a novel approach in the context of Ginnie Mae financial eligibility requirements–is unnecessarily punitive in its treatment of mortgage servicing rights, inappropriately calibrated for the business models of the issuers to which it would apply and insufficiently tested for a thorough understanding of its potential impact. As such, MBA fears that its implementation, as proposed, could reduce issuer participation and diversity, severely undermine market demand for Ginnie Mae MSRs, reduce aggregator demand for government-insured or -guaranteed loans and lead to higher interest rates and diminished access to credit for consumers.”
MBA said this outcome would be “particularly problematic” given the low- to moderate-income, veteran and rural homebuyers predominantly served by the loans backing Ginnie Mae securities.
“In light of these concerns, MBA recommends that Ginnie Mae pause any efforts to implement the proposed risk-based capital ratio requirement,” the letter said. “To the extent Ginnie Mae feels that such a requirement is necessary, it first should (i) assess the key business risks and market conditions that have driven historic issuer defaults, (ii) follow a thorough analytical framework to identify and understand the intrinsic risks associated with various assets held by issuers, (iii) engage with issuers to observe how they monitor, manage, and mitigate these risks, (iv) undertake significant impact analysis and backtesting to more fully understand the effects of the requirement on individual issuers, various categories of issuers, the MSR market, and consumers, (v) develop risk weightings that reflect the relevant risks and risk mitigants, (vi) allow issuers further opportunities to analyze and comment on these risk weightings, (vii) re-calibrate the parameters of the requirement as necessary, and (viii) allow a reasonable implementation period to prevent shocks to the market.”
More broadly, MBA has engaged with the Federal Housing Finance Agency, Fannie Mae and Freddie Mac and the Conference of State Bank Supervisors as well as Ginnie Mae, as these organizations simultaneously have considered changes to capital, liquidity and net worth requirements primarily directed at independent mortgage bank servicers. MBA frequently has called for alignment between the requirements adopted or recommended by these organizations and continues to do so.
“The case for aligned requirements is compelling,” the letter said. “Many IMB servicers are subject to the requirements put in place by FHFA (because they are GSE seller/servicers), Ginnie Mae (because they are Ginnie Mae issuers) and state regulators (in the states in which they do business). The most stringent among these requirements at any given time becomes binding for the servicer, and the other requirements therefore provide little benefit with respect to safety and soundness. Misaligned requirements also lead to higher compliance costs for servicers, which represent wasted resources given the lack of incremental safety and soundness that they produce. For these same reasons, the federal banking regulators have gone to great lengths to align the capital and liquidity requirements in place for the institutions they oversee.”
Perhaps most importantly, the letter said there is no logical reason for significant differences to exist among the requirements applicable to IMB servicers. “FHFA, the GSEs, Ginnie Mae and CSBS seek to promote stable operations and financial resiliency at IMB servicers, and these common goals should be achieved through a common regulatory and supervisory approach,” MBA said.
MBA said there are several additional enhancements to the Ginnie Mae program and the broader housing finance system that would reduce risks and bolster safety and soundness, particularly with respect to IMB servicers. In the Ginnie Mae program, these enhancements include policies that:
• re-balance advancing obligations,
• make emergency liquidity more consistently available,
• promote enhanced access to third-party financing of MSRs and servicer advances separate from MSRs,
• diversify the sources of MSR ownership, and
• allow for loan-level capabilities.
For the broader housing finance system, these policy recommendations include:
• better aligning Federal Housing Administration servicing policies with those of the GSEs,
• reducing the punitive treatment of MSRs in capital rules applicable to depository institutions,
• expanding eligibility for Federal Home Loan Bank membership, and
• re-calibrating agency MBS margining practices and requirements.
“Ginnie Mae and other federal and state agencies should pursue these policies in tandem with any changes to capital, liquidity and net worth requirements,” MBA said.
