FHA and VA lending now comes mostly from nonbanks, and that growing market share concerns the federal institution that securitizes those loans on the secondary markets, Ginnie Mae.
According to Ben Eisen and Nick Timiraos writing in the Wall Street Journal (available here, paywall), “Ginnie is particularly exposed to nonbank lenders. These firms service 61% of loans in securities issued by Ginnie, up from 34% at the end of 2014. What’s more, Ginnie’s outstanding issuance of mortgage bonds has grown fivefold since the financial crisis to $2 trillion.”
They write that the incoming leader of Ginnie Mae, Maren Kasper, is stepping up oversight of some of those lenders, but declined to say which ones and only mentioned they will need to “improve certain financial metrics.”
The article mentions that Ginnie Mae is also conducting stress tests of said firms. Again, not much detail is given, but typical stress tests involve fantasy scenarios on how the firms can respond to bad, worse and extremely ugly economic downturns. Ginnie Mae also issued new rules for servicers to follow and went so far as to remove VA loans from some lenders.
The worry, Eisen and Timiraos report, is among those lenders who also service the FHA and VA mortgages once originated, unlike some nonbanks that transfer MSRs once the loan closes.
“If homeowners default on their mortgages, these nonbanks are on the hook to continue advancing payments to investors, tax authorities and insurers until they are repaid by the government," they write. "Such outlays could compound financial problems for firms that are already struggling. In a worst-case scenario, companies could close without a buyer to purchase the servicing rights. That would force Ginnie to orchestrate the transfer of servicing and take other actions to ensure the orderly functioning of the market.”
