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Nonbank Lenders Usurp Banks as Ginnie MBS Leaders

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Theodore Tozer, president of Government National Mortgage Association (Ginnie Mae), speaks during the Mortgage Bankers Association Convention & Expo in Chicago, Illinois, U.S., on Tuesday, Oct. 11, 2011. The annual conference draws over 2,000 professionals in the mortgage-banking field. Photographer: Frank Polich/Bloomberg *** Local Caption *** Ted Tozer

As major banks have pulled back from originating Federal Housing Administration single-family loans, nonbank mortgage lenders have become bigger players in the Ginnie Mae program.

In 2011, the three largest banks - Wells Fargo, JPMorgan Chase and Bank of America — accounted for 68% of Ginnie Mae's mortgage-backed securities business. Today, nonbank mortgage lenders are responsible for 64% of Ginnie MBS issuance.

Banks have reduced their Ginnie issuance in part due to pressure from the Justice Department and the Department of Housing and Urban Development to enter into major settlements for allegedly sloppy underwriting of FHA-insured loans.

For its part, Ginnie is welcoming the added business from nonbanks.

"I am really happy about the non-depositories coming into the program," said Ginnie Mae President Ted Tozer in an interview.

Although nonbank mortgage lenders pose more risks for the secondary market agency, Tozer said he has no qualms with the idea that PennyMac and Quicken Loans have become top Ginnie issuers.

"We really are very supportive of them being in the program," Tozer said. "The housing market would be a lot worse off without them."

Ginnie is currently experiencing a jump in MBS issuance following a 50-basis-point reduction in the FHA annual mortgage insurance premium and a pickup in home sales.

In April, lenders securitized $38.9 billion in single-family loans via Ginnie Mae. FHA loans totaling $23.5 billion comprised 62% of Ginnie Mae issuance in April, compared to $13 billion in VA loans, which comprised 35% of Ginnie issuance in April.

In February, lenders securitized $20 billion in single-family loans via Ginnie Mae — 45% were FHA loans and 48% were VA loans. [Ginnie also securitizes Rural Housing Service loans, which make up about 3% to 5% of Ginnie securities.]

The largest MBS issuer is still Wells Fargo, with a 16% share of Ginnie Mae issuance. Freedom Mortgage has a 7% share, while JPMorgan, PennyMac and Quicken Loans each have a 6% share and U.S. Bank has a 4% share. The top 5 issuers were responsible for 39% of all Ginnie Mae MBs issuance during the first seven months of fiscal year 2015.

Tozer said he's pleased with the diversification.

"Now our top five issuers account for less than half our business," Tozer said. "No one has a double digit market share except for Wells."

Ginnie Mae issuers are obligated to advance payments to bondholders when borrowers miss payments. And it is not unusual for a FHA borrower to default or skip one or two monthly payments before catching up.

While banks sometimes deal with liquidity issues, nonbank lenders, which depend on lines of credit and other sources of funding, pose more counterparty risk for Ginnie.

But Tozer stressed in the interview that Ginnie does a "great job of vetting applicants so when we approve them they have great sources of liquidity."

However, Ginnie wants to monitor its nonbanks more closely to ensure they are not encountering liquidity issues. "We are just trying to make sure if something starts to happen, we can get ahead of it," Tozer said.

Ginnie has been seeking more funds from Congress to beef up its monitoring staff. The Obama administration requested $28 million for Ginnie staffing in fiscal year 2016, up from $23 million this year.

Tozer acknowledged that he was disappointed that the House appropriators rejected the $5 million increase. He is hoping the Senate appropriators will be more generous. He noted that Ginnie has $25 billion in capital to cover any losses.

"But I can't use it to actually hire people to avoid the losses," he said.

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