The lapses in oversight could have required Ginnie Mae to ask for additional Treasury funds in case of a large-issuer default
Ginnie Mae was unable to respond adequately to the rise of nonbanks in its issuer base, according to a report by the Department of Housing and Urban Development Office of Inspector General (OIG).
Six out of Ginnie Mae’s top 10 issuers for its single-family mortgage-backed securities program as of September 2016 were nonbanks, the report found. This compares to only one nonbank among Ginnie Mae’s top 10 issuers in 2011.
The top nonbank issuers as of September 2016 had a total remaining principal balance of $392 billion, while the total was only $24 million in 2011. Of Ginnie Mae’s single-family issuances, 73% were from nonbanks as of September 2016, compared to a 14% share for nonbanks in 2011.
The OIG said Ginnie Mae was not prepared for this shift in its issuer base and that it lacked skills to respond to the risks posed by the change. According to the report, Ginnie Mae did not implement policies and procedures for account executives to follow in managing issuers; develop a written default strategy; or assess and address related risks.
Given these omissions, Ginnie Mae may not identify problems with nonbank issuers to prevent default. Ginnie Mae may also be unable to service loans absorbed in a default and may require additional funds from the Treasury to pay investors in case of a large-issuer default.
The OIG recommended that Ginnie Mae continually review and update policies and procedures for account executives to reflect changes in operations. Ginnie Mae should also determine the potential impact of a large- or multiple-issuer default, according to the report.
Mortgage Bankers Association (MBA) President and CEO David Stevens said the report mischaracterized the risks posed by nonbank issuers. Stevens said the report failed to mention that independent mortgage bankers are currently subject to strong state and federal regulations such as examinations and information sharing by and among regulators.
"Improvements to Ginnie Mae's issuer oversight should focus on the growth in the number and diversity of issuers and the need for adequate resources and tools for this function,” Stevens said. “To this end, MBA continues to call for Ginnie Mae to have access to sufficient resources to adequately monitor its counterparties – both bank and nonbank.”
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Six out of Ginnie Mae’s top 10 issuers for its single-family mortgage-backed securities program as of September 2016 were nonbanks, the report found. This compares to only one nonbank among Ginnie Mae’s top 10 issuers in 2011.
The top nonbank issuers as of September 2016 had a total remaining principal balance of $392 billion, while the total was only $24 million in 2011. Of Ginnie Mae’s single-family issuances, 73% were from nonbanks as of September 2016, compared to a 14% share for nonbanks in 2011.
The OIG said Ginnie Mae was not prepared for this shift in its issuer base and that it lacked skills to respond to the risks posed by the change. According to the report, Ginnie Mae did not implement policies and procedures for account executives to follow in managing issuers; develop a written default strategy; or assess and address related risks.
Given these omissions, Ginnie Mae may not identify problems with nonbank issuers to prevent default. Ginnie Mae may also be unable to service loans absorbed in a default and may require additional funds from the Treasury to pay investors in case of a large-issuer default.
The OIG recommended that Ginnie Mae continually review and update policies and procedures for account executives to reflect changes in operations. Ginnie Mae should also determine the potential impact of a large- or multiple-issuer default, according to the report.
Mortgage Bankers Association (MBA) President and CEO David Stevens said the report mischaracterized the risks posed by nonbank issuers. Stevens said the report failed to mention that independent mortgage bankers are currently subject to strong state and federal regulations such as examinations and information sharing by and among regulators.
"Improvements to Ginnie Mae's issuer oversight should focus on the growth in the number and diversity of issuers and the need for adequate resources and tools for this function,” Stevens said. “To this end, MBA continues to call for Ginnie Mae to have access to sufficient resources to adequately monitor its counterparties – both bank and nonbank.”
Related stories:
Independent mortgage banks up production profitability in Q2
Mortgage banks see net gains tumble
