CHLA Letter Identifies Alternative Approaches to Address Liquidity and Going Concern Issues
Monday, September 12, 2022
Media Contact: Scott Olson
The Community Home Lenders of America (CHLA) today sent a detailed letter to Ginnie Mae, renewing its request to exempt small and mid-sized independent mortgage banks (IMBs) from new Risk-based Capital Requirements, in order to protect access to mortgage credit and avoid further concentration in the servicing industry.
Acknowledging that CHLA members are still analyzing how the new requirements affect their members, CHLA argued that bank-like requirements are simply not appropriate for smaller Ginnie Mae issuers and made the following request and explanation for its request:
“Therefore, we ask that any use of Risk-based capital standards be limited to only the top 10 or 15 mega-issuers, since there are more effective ways to address prudent supervision of smaller IMBs:
• If Risk-based Capital Requirements for IMB issuers are being driven by concerns about timely advances by issuers, the focus should be on enhancing liquidity, not on narrowing the issuer base. A more effective approach would be to create a permanent and broader PTAP standby credit facility, to assure confidence that all advances are made in a timely manner.
• If Risk-based Capital Requirements for smaller IMB issuers are being driven by concerns about administrative burdens of resolving smaller issuers, a more effective solution would be to give Ginnie Mae the same direct spending authority that FHA has for loss mitigation.
• Liquidity and net worth requirements are more than adequate for small and mid-sized issuers. Thus, we believe imposing risk-based capital requirements on these issuers fails the Ginnie Mae statutory charter requirement to balance access to credit and minimum loss.
• Imposing risk-Based Capital Requirements on IMBs is not needed to address counterparty issuer risk, since the MBS securities are backed by federally insured loans (FHA/RHS/VA).
• Risk-based Capital Requirements for smaller IMBs are not justified by potential losses in the transfer of MSR portfolios, as advances have value (and are monetized when FHA pays claims) and Ginnie Mae rarely if ever loses money transferring portfolios of smaller issuers.
• Any use of risk-based capital standards should be only as an evaluative or monitoring tool instead of as a requirement, to avoid selloffs of MSRs and resulting declines in MSR values. “
The letter goes on to explain that in light of Ginnie Mae’s continued strong profitability and very low counterparty risk exposure to smaller IMB issuers, Ginnie Mae should focus its efforts on its largest 10 or 15 issuers, which represent all of its systemic risk and the majority of its counterparty risk.
Read the letter here.