Ginnie Mae lays out a new plan for MBS issuer stress testing

Ginnie Mae released a long-awaited stress test proposal Tuesday that would forecast an individual issuer's performance over a two-year period under likely and adverse conditions.

The government mortgage-backed securities insurer will accept comments through the end of August on the request for input, which examines how certain financial data points and risk measures might be affected by a challenging market.

Specifically, Ginnie would examine projected balance sheet and income and cashflow statements, use a proprietary rating method to assign an issuer risk grade for the forecast period, and draw up projections for insolvency risk.

The government agency also would assess how projected scenarios might affect compliance with common counterparty requirements, including its own, the government-sponsored enterprises' and warehouse lenders'.

The plans for issuer stress testing addresses the growing concentration of nonbank counterparties Ginnie has in line with goals laid out in its 2020 modernization plan.

Nondepositories accounted for 78% of Ginnie's issuance in its 2018 fiscal year, up from 31% in FY 2010. (Ginnie's fiscal years start Oct. 1 and end Sept. 30 the following year.)

In addition to issuer stress testing, Ginnie is working on a maximum secured debt test, and credit rating and servicer requirements for large issuers. Nonbanks owned almost 65% of Ginnie Mae mortgage servicing rights as of April 2019, compared to nearly 28% back in December of 2013, according to a recent Fitch Ratings report.

Smaller mortgage lenders have evinced concern about some of Ginnie's risk management initiatives in the past, but the agency has been more responsive to their needs recently, according to Scott Olson, the executive director of the Community Home Lenders Association. He did not have an immediate comment on the details of the new stress test proposal.

"CHLA is encouraged by Ginnie Mae actions and statements since our January Ginnie Mae report that reflect an appreciation of the importance of maintaining a diversified base of smaller issuers, and an acknowledgement of the risk differences between small and larger issuer," Olson said in an email. "We look forward to commenting on this important RFI."

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