Ginnie Mae looking more closely at MBS issuers' secured debt ratios

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Ginnie Mae will be taking a closer look at mortgage-backed securities issuers with higher ratios of secured debt to gross tangible assets.

Single-family issuers with a ratio above 60% "may, at Ginnie Mae's sole discretion, be subject to additional financial and operational requirements prior to receiving approvals for various transactions," according to the government agency.

That means additional requirements could be imposed on a relatively large number of issuers.

"Probably about half of the rated nonbank mortgage companies have a ratio above that," said Warren Kornfeld, a senior vice president in Moody's Investors Service's financial institutions group.

That could be an issue when Ginnie adds some ratings requirements for larger issuers in 2020. Analysts consider secured debt ratios of 60% as indicative of higher levels of risk.

Issuers with portfolios of Ginnie Mae servicing above $25 billion will have to have an external primary servicer rating by Sept. 1 of next year, and issuers with portfolios larger than $50 billion also will need to obtain credit ratings.

Starting Sept. 1 of this year, Ginnie also will evaluate "whether a given approval would lead to a degree of concentration of issuers responsibility that may pose a substantial risk to the overall integrity and soundness of the MBS program."

And in addition, Ginnie has changed its requirements for liquidity and net worth calculations for most single-family issuers. New applicants can no longer include deferred tax assets when computing minimum net worth as a result of the change.

New applicants can use top-rated government securities that are marked to market as well as cash and certain cash equivalents to satisfy minimum net worth requirements.

The new liquidity and net worth requirements are in effect immediately for new applicants, and will go into effect for approved issuers starting in the 2020 fiscal year. Ginnie's fiscal year begins Oct. 1.

In other related Ginnie Mae news, the government agency is getting mixed reviews in response to its request for input on a stress test proposal.

Kornfeld called it "positive" to the extent it is transparent and helps manage the risk of the nonbank mortgage sector.

But smaller nonbank issuers are concerned the tests could put undue financial stress on them and potentially affect their business relationships with warehouse lenders. If Ginnie nevertheless insists on stress testing smaller issuers, the Community Home Lenders Association's position is that those tests must avoid these pitfalls. Any tests also should "not supersede qualitative reviews or liquidity or net worth ratios," according to the group.

Chris Whalen, chairman of industry consultancy Whalen Global Advisors, also has advised Ginnie against nonbank stress testing given the potential for undue expenditures that may outweigh the risk management practice's benefits.

"We believe that this proposal represents an unreasonable deployment of limited resources that will, in fact, be a burden to issuers and also to Ginnie Mae," he said.

While Whalen opposes risk modeling that could cost issuers "millions of dollars per year," he alternately supports "reporting of key financial metrics (as the RFI discusses) to support program guidelines."

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MBS Nonbank Risk management Servicing Reverse mortgages Ginnie Mae