Servicers are finding they can borrow more against their Ginnie Mae mortgage servicing rights this year, according to a recent report.

Servicers often borrow against the value of their MSRs to maintain liquidity and finance their operations. The increase in advance rates on Ginnie Mae servicing rights comes as MSR financing providers expect rising mortgage rates to stabilize prepayment speeds.

"Whereas a year ago, lenders were reluctant to lend more than 50% against GNMA MSRs or advances for distressed loan servicing, today the loan rates vs. GNMA MSRs and loan collateral advance rates have climbed into the 70s," Chris Whalen, chairman of consultancy Whalen Global Advisors, wrote in a March 21 report. Whalen formerly headed the financial institutions group at Kroll Bond Rating Agency.

The report analyzes "involuntary terminations" of distressed issuers resulting in the seizure of MSRs by the government agency, which is a key risk for those lending against the collateral. It also examines the recent revision of a Ginnie contract aimed at better defining and limiting that risk for servicers.

Ginnie, which guarantees investor payments on securitized government mortgages, has been able to avoid MSR seizures more often than not, according to the paper.

The unpaid principal balance of MSRs involved in instances where Ginnie withdrew troubled issuers' approvals but no seizure occurred was nearly $65 billion, but the UPB involved in Ginnie MSR seizures is less than half that amount at nearly $30 billion.

Bank-issuers account for only $157 million of the MSRs Ginnie has seized. Fannie Mae and Freddie Mac servicing transfers related to counterparty distress are rarer than they are at Ginnie, so agency loan collateral advance rates remain higher than Ginnie's at 90%.

"While the potential risk of termination of a mortgage servicing portfolio is very real, in reality the chances of such an occurrence seem to be relatively small," Whalen concludes.

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