Ginnie Mae is not budging on its proposal to put a 250% risk weight on gross mortgage servicing rights.
The requirement would be for nonbanks, who make up the bulk of the Federal Housing Administration market. Ginnie Mae specifically called out those institutions that are not “regulated by a federal prudential regulator” or state-chartered in guidance it published today, a day after it made a joint announcement with the Federal Housing Finance Agency.
Government loans and conforming loans held for sale would have a 20% risk weight. Other loans held for sale would have a 50% risk weight. The compliance date for the requirement is December 2023.
The most substantial area of non-alignment between Fannie Mae and Freddie Mac’s regulator and Ginnie Mae is the latter’s requirement that nonbanks hold a 6% ratio of adjusted net worth to risk-weighted assets. Excess mortgage servicing rights would be excluded from the net worth calculation.
In a fact sheet it subsequently appended to its initial press release, Ginnie Mae explained why it sees MSRs as an area of particular concern.
“MSRs, while arguably the single most important asset held by IMBs, also represent a unique risk to the solvency of IMBs during periods of economic turbulence,” Ginnie Mae wrote. “By making the [risk-based capital ratio] a program requirement, Ginnie Mae is attempting to balance the importance of holding MSRs while creating an attractive return, while limiting the unique risks MSRs represent.”
Ginnie Mae did not respond to a request to comment.
Mortgage servicing rights are vulnerable to high-volatility market conditions, Ginnie Mae said, and MSRs also pose a valuation and liquidity risk. The value of MSRs is dependent on how likely borrowers are to refinance their loans, which is highly sensitive to rapid changes in mortgage rates.
Ginnie Mae, a government corporation under the auspices of the Department of Housing and Urban Development, guarantees securities backed by pools of mortgages insured by FHA, as well as the Department of Veterans Affairs and the Department of Agriculture. Those securities are backed by the full faith and credit of the U.S. government.
Ginnie Mae first proposed the risk weight for mortgage servicing rights in July 2021, when it sought input from industry stakeholders. While it relaxed some requirements for its issuers, Ginnie Mae did not change its stance on mortgage servicing rights.
Pete Mills, the Mortgage Bankers Association senior vice president for residential policy, called the requirement “punitive.”
“It stigmatizes the asset,” Mills said. “It’s dissonant with Ginnie Mae’s desire to attract more servicers to the business.”
In recent years, depositories have retreated from the FHA market, citing concerns over lawsuits for loan-level defects brought by the government. Independent mortgage banks, which have a different business model and regulatory structure, have largely supplanted the once-dominant depositories. Mortgage banks act as intermediaries between borrowers and the government entities that set guidelines for mortgage lending.
In 2021, non-depository lenders originated mortgages representing 91% of all FHA forward business, up from 57% in 2010, per HUD’s most recent annual report to Congress.
Dave Stevens, a former FHA commissioner, called the risk-based capital requirements “onerous.”
“I don’t think Ginnie Mae was being thoughtful in this part of the proposal,” Stevens said. “Who is going to service these loans?”