Mortgage

CHLA joins requires Ginnie Mae to revise proposed capital requirements

Ginnie Mae's proposed equity standards for non-banks should be withdrawn or adjusted to meet the needs of small actors who place a disproportionate burden on them, the Community Home Lenders Association said in a press release on Thursday.

A wide range of mortgage industry officials and experts have also protested the plan, which was detailed in a request for contributions to Ginnie, but some large players were more confident than smaller ones. Analysts have questioned whether if the plan forces less well-capitalized lenders to sell their state-insured mortgages to correspondence channels that buy closed-end loans, it will be a constraint or an opportunity for large corporations.

Bank-like capital standards, which have long been a threat to small non-custodians, are less applicable to non-banking models, argued the CHLA. The group's letter reiterates several points the group made in 2019 when it looked like Ginnie was considering them.

"This RFI proposal would restrict access to mortgage credit, hit smaller issuers disproportionately and increase emissions concentrations," the group said in the letter. "Therefore, CHLA urges Ginnie Mae to withdraw the proposal – or to revise it to focus on larger issuers."

Ginnie's responsibility is to ensure that mortgage cash flows are advanced to investors after loans insured by other government agencies are securitized. Therefore, in managing counterparty risk, it must ensure that the companies it works with meet their obligations.

While smaller companies with less capital may have less financial buffer against financial failure, it is the demise of large companies like Taylor, Bean & Whitaker that has caused most of the disruption to Ginnie in the past, the CHLA noted in its letter.

"The settlement risks for the smaller [independent mortgage lenders] are so low that we just don't think it appropriate to set the bar so high," said CHLA managing director Scott Olson in an interview.

In contrast, in a separate press release, CHLA noted that, following some changes made to an earlier version, it deemed the model prudential standards for non-banking service providers recently set by the Conference of State Banking Regulators to be appropriate.

The group commended the CSBS's decision to "encourage states to set their own de minimis volume exemptions for smaller service providers and to [eliminate] proposed design requirements that duplicate other existing agency requirements".

The only remaining concern is that the standards still duplicate some requirements from Ginnie and government sponsored companies and add some levels of compliance that may be unnecessary.

"Smaller servicers are already following Ginnie Mae's and GSE's detailed maintenance requirements that are superfluous with the new CSBS state standards – so we remain concerned about unnecessary new compliance costs and burdens in multiple states – with little or no additional regulatory benefit." so the CHLA said.

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