Ginnie Mae's MBS issuer shift creates a 'greater risk of loss': GAO

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The Government Accountability Office called on Ginnie Mae to undertake four reforms to its operations, citing concerns regarding the ongoing shift in size and capitalization of mortgage-backed securities issuers.

Nonbanks, which now issue the majority of Ginnie Mae MBS, lack the funds that bank issuers do, and this was a long-standing concern of Ted Tozer, the agency's former president. If borrowers default on their mortgages, the servicers are still responsible for making the monthly payment to the MBS investor. However, Ginnie Mae is the ultimate guarantor of those payments.

Ginnie's guaranteed MBS portfolio — a combination of its outstanding unpaid principal balance and new annual issuance — ballooned to $2.4 trillion in 2018, a value that grew nearly $500 million since 2014.

To combat concerns over the shift, Ginnie increased the minimum financial requirements to curb risks since nonbanks aren't always privy to comprehensive federal safety and soundness standards.

But Ginnie, by law, has limited flexibility with its options in addressing the risks. The GAO recommended four actions for the association to take and for congressional consideration.

The paramount action would be conducting an actuarial analysis on its single-family MBS guarantee fees. Ginnie needs to figure out if they're high enough to provide reserve coverage to make up for potential loss in the case of economic declines, the GAO said.

The other actions include finding the optimal operational mix between in-house staff and contractors, assessing the most efficient use of funds, and revising its compensation structure and submitting for HUD for review.

The GAO recommended Congress evaluate Ginnie Mae's four action items and determine the best ways for the association to conduct and revise its MBS portfolio moving forward.

Maren Kasper, Ginnie Mae's acting president, responded to the report, saying it aligned with the recommendations and will proceed with working toward them.

Ginnie Mae recently aimed a request for input at lenders asking how to make its guaranteed mortgage-backed securities fairer to investors without hurting borrowers.

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MBS Securitization Nonbank Enforcement Refinance GAO Ginnie Mae HUD