Ginnie Mae President Joseph Gormley, who is also serving as acting commissioner of the Federal Housing Administration (FHA), said the counterparties participating in Ginnie Mae’s program have evolved significantly since the Great Financial Crisis, with greater exposure to independent mortgage banks (IMBs) that have invested heavily in governance and risk management.
Still, he cautioned that some “outliers” remain: “We can’t tell you how to run your business,” Gormley said during the Mortgage Bankers Association (MBA)’s Secondary and Capital Markets Conference in New York on Monday. “But we can say that we like to see companies that have a balanced portfolio.”
Gormley added that recent changes to the loss-mitigation waterfall in the FHA and U.S. Department of Veterans Affairs (VA) channels have increased exposure for certain firms. Some companies, he said, acquired risk-layered portfolios with lower credit scores, higher debt-to-income (DTI) ratios and elevated loan-to-value (LTV) ratios — assets that can become difficult to finance or sell in stressed markets.
“That’s something we are keeping a careful eye on,” Gormley said.
He also said that Ginnie Mae has strengthened its oversight capabilities over the past decade through investments in technology, staffing and surveillance systems.
“We’ve made a lot of investments in technology over the last decade, and in human capital as well. … Our surveillance tools have improved; it’s easier for us to see into that activity earlier on,” Gormley said.
Ginnie Mae typically requires issuers to keep delinquencies at 5% or less of their portfolio. But changes to trial payment plan (TPP) loans were putting some issuers at risk of breaching these thresholds.
An internal analysis showed that almost the entire recent uptick in FHA delinquencies could be ascribed to loans in TPP status. In response, Ginnie Mae in April temporarily removed TPP loans from delinquency calculations — a policy Gormley expects will remain “in place for a while.”
Servicing liquidity
To bolster servicing liquidity, Ginnie Mae is accelerating a loan-level transfer initiative. Currently, issuers create pools that can range from a handful to thousands of loans. But once these pools are issued, Gormley said, there are limited circumstances when a loan would come out — including early termination, payoff, or if the loan is bought out because it becomes seriously delinquent.
“We’ve been working on an initiative to allow loan-level transfers in the program, and it’s something we’ve been increasing the velocity of change on over the last year,” he said.
While the legal and policy frameworks are clear, modernizing the technology remains the primary hurdle. Ginnie Mae must track final certifications on a loan-level basis and establish a final cutoff date across the program.
“We’ve begun some outreach to issuers to understand what burdens they would face in aligning to a single uniform standard, but that’s going to be a line of work that continues on through this year,” Gormley said.
Gormley said there is also an ongoing effort to bifurcate acknowledgment agreements — the tri-party agreements between Ginnie Mae, an issuer and its financer.
Partial claims
Ginnie Mae is also working to attach its partial claims to first-lien mortgages. Currently, a partial claim acts as a subordinate federal lien, which creates substantial hurdles. For example, subordinate liens are subject to the Show Me decision, which requires judicial foreclosures even in non-judicial states.
“No one really can figure out how that’s supposed to work,” Gormley said. “It impacts our recoveries because we find that at payoff, the partial claim that’s not attached is missed. It leads to a bunch of really unfortunate situations where the borrower forgot about this, and they’re getting chased down by collections at the end.”
Flávia Furlan Nunes reported and wrote this article with drafting assistance from HousingWire Automation, an editorial tool that helps transform announcements and industry data into HousingWire-style news coverage.