Ginnie Mae to Issuers: We Want More Data, Not More Cash
WASHINGTON — Ginnie Mae's plans to beef up oversight in response to the growth of nonbank issuers in its ranks will emphasize deeper analysis of firms' capital and liquidity positions.
Rather than simply require issuers of Ginnie Mae mortgage-backed securities to maintain larger capital and liquidity reserves, the federal agency intends to implement increased reporting requirements to ensure issuers' lines of credit and access to cash will be sufficient to carry them through rough spots when liquidity is tight. The new requirements will apply to both depositories and nonbanks.
"Requiring issuers to hold more cash is not on the drawing board right now, but the idea of how we look at where the cash is coming from and analysis of the balance sheet is on the drawing board," Ginnie Mae President Ted Tozer said in a Sept. 23 interview.
Tozer has welcomed nondepository mortgage bankers into the Ginnie Mae program, but is now concerned his agency does not have the resources to properly monitor the financial condition of independent mortgage banks, which don't have standard financial structures like banks.
But the notion that any heightened requirements would include an increase to the dollar amount of issuers' capital and liquidity reserves, or that the requirements would be applied only to nonbank issuers, was met with resistance by David Stevens, president and CEO of the Mortgage Bankers Association.
"Ginnie Mae has an obligation to do the appropriate due diligence on anyone who's going to service Ginnie Mae mortgages to make certain they have the ability to service those loans appropriately and protect the taxpayer," Stevens said. However, "to consider putting financial impairment to people's access to the program just seems to be the wrong approach."
To monitor banks, Ginnie Mae can rely on the work of other regulators, such as the Federal Deposit Insurance Corp., to monitor the financial health of issuers. But nonbanks are subject to regulation by 50 state regulators, whose methods and reporting can be inconsistent. Adding new, standardized reporting requirements to Ginnie's liquidity and cash requirements for issuers will give the agency additional insights into servicing operations.
"We have to make everything cookie-cutter. We don't have the staff to do anything differently," Tozer said in an earlier interview during a Sept. 21 Ginnie Mae conference.
Regulators like the Office of the Comptroller of the Currency examine mortgage operations as part of their overall evaluation of banks, Stevens said, "but I would suggest that while they're looking at capital, they may not be considering how leveraged the capital is in that institution versus, say, a monoline institution."
At the same time, nonbanks face scrutiny from state regulators, their warehouse lenders and the Consumer Financial Protection Bureau, which is responsible for enforcing the mortgage servicing rules it implemented in January 2014.
"I'm hearing more regulatory and supervisory feedback from the bureau than I am the OCC or FDIC related to servicing," he added.
Recalling his past work experience, "personally, I felt more regulated running an independent mortgage banker than a bank," Stevens said, noting that banks and nonbanks alike are far more regulated now than before the housing crisis.
Ginnie Mae intends to reveal more details about its plans at the MBA's Annual Convention in October. But essentially, Ginnie is going to be looking at "where the cash and lines of credit coming from and how they are being financed," Tozer said.
Ginnie will be "comparing issuers in ways that we are not doing today," which will give "better insights into how issuers are functioning from a financial standpoint," Michael Drayne, senior vice president of Ginnie Mae's office of issuer and portfolio management, said in an interview.
Meanwhile, issuers are still implementing capital and liquidity financial requirements that were announced last year and the agency does not intend to increase those requirements at this time.
Nonbanks often rely on their valuable mortgage-servicing rights to maintain appropriate capitalization levels. But the MSRs are less liquid than some bank assets, like deposit funds, which could pose challenges in the event an issuer suffers a serious liquidity crunch.
"That is the reason why I am concerned that they have plenty of cash and lines of credit with their banks and can keep the cash flowing," Tozer said at the Ginnie Mae conference.
"Cash is king," Tozer added.
Stevens, who served in the Obama administration for two years as Federal Housing Administration commissioner, said concerns about Ginnie Mae's ability to withstand the failure of a large servicer are overblown because it's the FHA and other government mortgage insurance programs that guarantee the credit risk of mortgages in Ginnie Mae securities.
"I worry that Ginnie is trying to draw too much attention to themselves as though it's all on their backs, when really it isn't," he said.
"From a counterparty risk standpoint and the ability of Ginnie Mae to ensure the timely remittance of payments to the investor — which is their primary job — that never became a risk during the largest number of institutional failures that we have ever seen in this country in the mortgage space," Stevens added.
To that end, the best way to protect Ginnie Mae's guarantee is to ensure a robust number of issuers are in place to take on additional servicing capacity in the event an issuer fails, Stevens argued.
"Ginnie Mae and the taxpayer are actually better served by having more approved servicers in their network rather than less," he said.
Ginnie Mae was taken to task for overlooking "red flags" and lapses in its accounting practices in two recent Federal Housing Finance Agency Office of Inspector General reports that criticized its oversight of Taylor, Bean & Whitaker and how it handled the failed lender's collapse. (In response, Ginnie Mae officials took issue with many of the reports' findings.)
The debate over how Ginnie Mae should best insulate itself from losses associated with servicers failing to make timely payments to bond investors comes as Tozer is pushing for a $5 million increase to his agency's $23 million annual budget.
The budget increase request is unlikely to be granted because the Department of Housing and Urban Development, which operates Ginnie Mae, hasn't made it a priority, said Stevens, adding that Tozer could do more to ingratiate Ginnie Mae with HUD Secretary Julian Castro's office.
"Ted almost talks like he's an island in his own separate appropriations, but he's part of the HUD budget," Stevens said.
"The first step, and I've been in that seat, is to make the secretary's office make your budget request the priority. And I don't believe that's been done," he added.