Ginnie Mae, the agency that guarantees mortgages made by various government institutions, is taking unprecedented steps to address concerns over the role of nonbank lenders in U.S. housing markets.
For the first time in years, the agency has asked a number of these lenders to improve financial metrics before receiving full approval to continue issuing Ginnie-backed mortgage bonds. Maren Kasper, who became the agency’s acting head this month, declined to name the specific firms but noted they included both large and small lenders, and that they have been receiving short-term approvals in the meantime.
The agency has also conducted its first ever stress tests of business partners, to see how well their monthly cash-flow obligations would hold up under reduced loan production and increased delinquencies.
While 34 percent of securities issued by Ginnie Mae were serviced by nonbank lenders in 2014, that share has now increased to 61 percent. The agency’s outstanding issuance of mortgage bonds is now $2 trillion, a fivefold increase since the financial crisis.
A cooling housing market, with mortgage refinancing recently falling to its lowest level in 18 years, has raised concerns about nonbank lenders’ ability to meet their financial obligations since their balance sheets are smaller than traditional banks.
In the worst-case scenario, disorderly failures of these servicers could lead to losses that ultimately have to be paid for by taxpayers.
Though some in the industry argue that the strong post-crisis regulatory framework makes these challenges manageable, other observers note that the system has never been truly tested.
The largest nonbank lenders by mortgage-origination volume last year were: Quicken Loans Inc., PennyMac Loan Services LLC and United Wholesale Mortgage. [WSJ] — Kevin Sun