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Ginnie In Brief

Posts by Michael Drayne | View All Blog Posts
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GIB APM 19-06 Thumbnail Image[1]
by Michael Drayne | 8/22/2019

In 2018, Ginnie Mae developed a set of revisions to the MBS Guide’s treatment of counterparty risk, updating what is required to ensure the overall financial health of the Issuers who make guaranteed pass-through payments to Ginnie Mae MBS investors. The revisions are published in three installments: The first two came in November 2018 (APM 18-07) and March 2019 (APM 19-02), and Ginnie Mae is releasing the third today in the form of APM 19-06. 

This post provides useful information about a few of the items in APM 19-06, reflecting views about counterparty risk that we want to be sure Issuers and other stakeholders understand. Each of these policy enhancements was originally highlighted in the “Ginnie Mae 2020” report in 2018.

1.      Risk Parameters. We have increasingly incorporated additional guidance about risk into the MBS Guide. A prime example is Chapter 3, Part 21, Section B, which describes acceptable risk parameters, as well as situations that may represent departures from acceptable risk.   

In APM 19-06, we add a new item to the list of situations of concern: Secured debt that is greater than 60% of gross tangible assets. This metric, which is utilized in rating agency methodology, is important because an institution whose assets are heavily encumbered has less flexibility to use them to raise liquidity, should the need arise. While we are not stating a preference for unsecured debt nor are we establishing 60% as a hard compliance threshold, we are putting Issuers on notice that this metric is being closely monitored and that secured debt in excess of the stated level could impact future program management decisions.

2.      Concentration. Similarly, in Chapter 4, Part 8 and Chapter 21, Part 3, we introduce concentration of servicing or subservicing as a factor that could be included in our evaluation of a servicing transfer or subservicing approval request. This reflects the widely held view that concentration risk is a fundamental concern of portfolio management. Currently, Ginnie Mae does not have market share limits for Issuers or subservicers, and none are imminent. However, as the residential finance landscape continues to evolve, this issue needs to be part of the dialogue and, accordingly, we have introduced it to the MBS Guide. We understand that policy actions on this subject could have a significant impact on program participants and should be developed with ample opportunity for input by stakeholders.   

3.      Required Ratings. Finally, we are requiring that issuers whose portfolios exceed certain size thresholds obtain external servicer or credit ratings, as explained in Chapter 3, Part 18. As stated in “Ginnie Mae 2020,” we believe that “Issuers who attain a certain level of prominence within the housing finance system should be expected to make greater investments in transparency compared to other Issuers.” It is likely that the required rating thresholds will be utilized in the implementation of other policy actions in the future, since as we have said in other places it is less appropriate than in the past to manage the MBS program on a one-size-fits-all basis.

The publication of APM 19-06 concludes our planned counterparty risk APM series, though we will certainly continue to work on this subject and, as a result, see more changes to the MBS Guide.  

Over the coming year, our efforts will be centered on the three topics we identified in our recent “Progress Update: Ginnie Mae 2020” report: Capital requirements, stress testing and resolution planning report. These will help constitute a “holistic framework” for managing counterparty risk as a guarantor and narrow the gap that exists between the prudential regulation standards that apply to federally insured banks and the various program standards that govern non-banks. These three focus areas stand to be a major part of our dialogue with stakeholders in the period ahead.

The Benefits of Attending the 2019 Ginnie Mae Summit
by Michael Drayne | 5/21/2019

The 2019 Ginnie Mae Summit is fast-approaching, which means Issuers, lenders, investors and policymakers will soon get the chance to hear from, meet and engage with leading figures in the mortgage industry. This year’s two-day event, June 13 to 14 in Washington, D.C., will feature an array of prominent speakers, edifying breakout sessions and insightful panels focusing on a wide range of subjects.

Remarks by high-ranking administration and agency officials as well as policy, thought and business leaders are scheduled throughout the Summit. Along with officials from the Department of Housing and Urban Development and Ginnie Mae, speakers include representatives from the Mortgage Bankers Association, Urban Institute, Freddie Mac, BoA Securities and Credit Suisse.

Attendees will hear from experts about the state of the housing finance system, what’s in store for its future and how stakeholders will be affected. Speakers will touch on recent changes to Ginnie Mae’s MBS guide, certification requirements and compliance reviews as well as areas of upcoming modernization and much more.

In the above video, Michael Drayne, Ginnie Mae’s Senior Vice President in the Office of the President, describes the Summit breakout session that most excites him and the opportunity that it will provide for Issuer participants.

A valuable perk of attending is being able to ask the experts questions. The Summit also features opportunities for professional development such as training sessions, program overviews and networking events.

Don’t miss out on the 2019 Ginnie Mae Summit! Registration and hotel accommodations are filling up quickly, so be sure to book soon.

Register for the 2019 Ginnie Mae Summit

GM_MortgageServicing_Thumb
by Michael Drayne | 7/24/2018

Mortgage servicing rights

The government mortgage market is very different from what it was ten or even five years ago, especially for Ginnie Mae. In 2011, four of the top five issuers of Ginnie Mae mortgage-backed securities (MBS) were banks; at the end of 2017 four of the top five issuers were non-depository mortgage banks.

This change has implications for how Ginnie Mae oversees the mortgage servicing rights (MSRs) that underlie its securities. Ginnie Mae MSRs come into being when mortgage loans are securitized — they are the right and obligation to collect and remit funds from the mortgages. MSRs are valued and shown on the balance sheet of the firm that has the responsibility for the servicing function. In a sense, MSRs are the collateral for the guaranty Ginnie Mae places on its mortgage-backed securities: if an approved lender/servicer fails to live up to its obligations under our MBS program, it may be required to forfeit the MSRs it holds, and the value associated with them.

The value of MSRs, and the health of the market in which they are financed and (sometimes) traded, has become increasingly important as a result of the shift from banks to non-banks in residential finance. This is because MSRs are typically a much more significant component of the financial structure of non-banks than they are for banks.

Following are examples of how Ginnie Mae is working to preserve the value of MSRs, and the health of the MSR market:

Combatting rapid loan prepayments from “churning”

As Ginnie Mae investigated a trend of persistently fast prepayments uncorrelated with economic conditions, it became apparent that the cause was lending practices that exploited the terms of the VA refinance program, in ways that were causing harm to veterans and losses to Ginnie Mae investors. We moved quickly and implemented new guidance that curbed the problem, and this was followed recently with federal legislation that should protect veterans for the long term. This will also give investors greater confidence in the value of securities, which translates into a lower cost of homeownership.

These actions will also have a positive impact on MSR values, because the harmful business practices also cause losses for the firms that invest in Ginnie Mae MSRs. Avoiding servicing losses where possible is worthwhile, because such losses are likely eventually to be passed along to homeowners.

Fostering increased investment in Ginnie Mae servicing

As we announced in our recent white paper, Ginnie Mae 2020, we are also exploring way to make financing more available to holders of Ginnie Mae MSRs, and to make it possible for a wider variety of institutions to participate in this market.

These would not necessarily be easy or quick things to accomplish, but we are pursuing them because the benefits of diversifying investment and financing in this field are large. Owning and servicing MSRs is a capital-intensive proposition, and the more avenues that exist for capital to flow into the system on attractive terms, the less likely it is that there will be a systemic breakdown that makes it more difficult to finance homeownership.

MSRs are an arcane, and in many ways underappreciated, topic but an effective MSR market has never been as important as it is now. Ginnie Mae can be relied upon to continue to look for ways to improve this segment of the overall residential finance system.

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by Michael Drayne | 6/20/2018

Since our inception 50 years ago, we have proven ourselves to be a durable mainstay of the U.S. housing finance system, and the past decade at Ginnie Mae has been one of historic growth and change. Our market share has risen to a peak of 31 percent in recent years – up from just 4 percent in 2005 – and we are now the second largest guarantor of MBS, measured by securities outstanding. To keep pace with our expanded role in the housing finance system, we continue to explore new ways to meet the evolving needs of the mortgage market.

To educate the marketplace about the many ways Ginnie Mae is modernizing its platforms, programs and products in the coming years, Ginnie Mae is pleased to release Ginnie Mae 2020. A companion paper to Ginnie at 50, this paper will build on our 50-year history with a particular focus on our modernization efforts of the past seven years. It outlines our modernization efforts across three pillars of strategic focus to Ginnie Mae:

  1. Our mortgage-backed securities program and platform,
  2. Standards for managing counterparty risk, and
  3. Organizational innovation.

In addition to exploring these three pillars of change that will take us into the next decade and beyond, this paper discusses milestones Ginnie Mae plans to achieve by the year 2020.

Since 1968, Ginnie Mae has been flexible and stable enough to survive all market conditions, and we will continue this track record of success as we modernize and explore opportunities for innovation.

We encourage you to read Ginnie Mae 2020 to learn more about Ginnie Mae’s modernization goals through 2020, and for decades to come.

Ginnie In Brief

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Last Modified: 11/2/2019 2:29 PM