As if the housing crash, more regulations, increased agency scrutiny and CFPB oversight didn’t create enough challenges for Independent Mortgage Bankers, along comes potential new Ginnie Mae increased cash and liquidity requirements (Ginnie Requirements).
With Independent Mortgage Bankers taking a lead role as issuers of Ginnie securities, along comes a concern that such lenders may not have the financial capacity to cover advances for principal and interest due on loans that go delinquent in their pools.
Many Independent Mortgage Bankers have most of their financial strength tied up in the value of their servicing rights and not in available cash. Accordingly, an event which causes increased defaults could cause an issuer to run out of the money needed for delinquent loan advances. As best that it can, Ginnie has to protect this from happening.
This concern could now result in requirements for Independents to show increased cash reserves for continued participation in the Ginnie Mae program. It may also have security purchasers wary of pools issued by the Independents, making them less attractive. Both concerns will have an adverse effect on the availability of government loans through Independent Lenders. Most of which would fall in the first time and low to moderate income home buyer categories.
This is not good for these home buyers, lenders, realtors, builders, the housing recovery or the economy. Just one more hurdle to overcome. On the other hand, if the Independent issuers cannot stand behind their pools, the pools become worthless and the entire program is in jeopardy of collapse. This is something that we cannot allow to happen.
Now for the old good news; bad news scenario. Independent lenders are picking up the slack in government lending resulting from banks shying away from it. But, in doing so, there is an increased risk to the Ginnie Mae program.
Ginnie Mae has been charged with coming up with plans and proposals to address these issues. These issues will be discussed with lenders at the upcoming MBA Conference being held in San Diego.
Lenders can help themselves by originating quality loans with the ability to repay and fewer defects. This will help to reduce the risks for defaults and required advances, benefitting Ginnie Mae and the FHA insurance fund. Fewer defaults mean less need for advances, with fewer foreclosures resulting in fewer claims paid from the FHA insurance fund.
What’s the answer?
- Increased cash reserve requirements for Independent lenders
- Tighter credit standards for government loans
- Shift resources to allow more oversight of Independents issuing Ginnie securities
- Get banks more involved in government loan lending and Ginnie MBS’s.
It all starts with quality loans and that is something that all lenders can control.