WASHINGTON—The Government National Mortgage Association expects the increase in its minimum net-worth requirement to $2.5 million will have a limited impact on active MBS issuers.
Currently, there are roughly 300 approved issuers of Ginnie Mae mortgage-backed securities, but only 200 or so are considered active.
“We feel pretty good that none of our active issuers are going to be forced out [of business],” Ginnie Mae president Ted Tozer said in an interview with Origination News. “I can’t speak for the inactive issuers.”
The agency is raising its current net-worth requirement of $1 million to $2.5 million effective Oct. 1, 2011. (Issuers also will need to meet new liquidity and minimum capital requirements by next October.)
“We worked with the people who are short to give them a phase-in period,” said Tozer.
He noted that Fannie Mae and Freddie Mac have already increased net-worth requirements for their seller/servicers.
At the same time, servicers are facing financial stress because of elongated foreclosure periods where they must continue to make principal and interest advances to MBS investors, even though some of the underlying loans are in default.
“That’s the reason we increased the capital requirement,” Tozer said. “So far, we have not gotten much negative 'push back’ from our issuers.”
Most well-capitalized community banks with $50 million in assets can meet the $2.5 million net-worth requirement. But it’s more difficult for the small independent mortgage banking firms. Some of these firms lack capital and they do not have enough liquidity to make P&I advances. “That’s our biggest concern,” said the Ginnie Mae president.
He noted that nonbank mortgage funders rely on warehouse credit lines and these lenders require capital, too.
“Ginnie Mae could be more reasonable on the small business owner,” said George Temple, a former independent mortgage banker who sold his company to a bank.
“They’re making it much more difficult for the independents to survive,” Temple said. His son recently bought a mortgage banking firm in Virginia.
He noted that the higher quality of originations these days makes it less risky for Ginnie Mae.
“A big guy going bad is much more risky than 200 small guys as far is Ginnie Mae is concerned,” Temple said.
Ginnie Mae issuers securitized $413 billion in government-guaranteed residential mortgages in fiscal year 2010, which ended Sept. 30.
