Ginnie Mae Chief Alanna McCargo on capital standards, inclusivity

March 9, 2022 5:51 PM

As the first Senate-confirmed woman to head Ginnie Mae, and someone who has dealt with a variety of business and public interests throughout her career, Alanna McCargo says she’s taking an inclusive approach that considers the needs of borrowers and the housing-finance industry.

In an interview with National Mortgage News on International Women’s Day, McCargo noted the importance of increasing access to Ginnie Mae for small nonbanks in order to narrow gender and racial gaps in homeownership. She’ll be keeping that in mind as she revisits the capital proposal that some companies have criticized as being exclusionary.

McCargo also expressed interest in working within the mortgage-finance system to address other business challenges that may be hurdles to the Biden administration’s affordable housing aims.

alanna McCargo.jpg — Alanna McCargo, president of Ginnie Mae

From per-unit costs that discourage the creation of smaller balance loans to operational challenges in processing modifications as forbearance ends, McCargo noted the importance of balancing stakeholder needs while preparing for a return to a more “normal” market environment. The latest numbers show that monthly issuance has returned to where it was pre-pandemic, and that default-related prepayments have fallen to the lowest level since April 2020.

In that light, a comment McCargo made about Ginnie Mae’s work with other housing agencies on the capital plan has broader applicability as it returns to long-term planning.

“It’s not easy, but I do believe we have to strike…the right balance,” she said.

What follows are further excerpts from the interview with McCargo, edited for clarity and length.

I heard you wanted to talk today about the gender gap in housing?

There has been an ongoing gap for many decades in homeownership. There was a lot of research work that I did when I was at the Urban Institute that talked about how women actually are better at paying their mortgages than men. The gap has persisted.

There is opportunity because women have continued to trailblaze when it comes to buying their own homes for single-headed households. They’re graduating from college at higher rates and have increasing incomes, so there’s been some opportunity to narrow this gap over time.

We don't set policy on the underwriting side, but we do play a role when it comes to the mortgage-backed securities that help lenders finance government mortgage programs. Those programs have supported a lot of women-headed households that tend to have lower incomes. That connects to the work that we do, expanding homeownership and closing gaps along gender and racial lines. Those gaps persist in both categories.

Do small lenders have a role to play in addressing this?

Minority depository institutions, credit unions, and all of those sorts of smaller players are making mortgage credit available to their communities without really having access to the Ginnie Mae platform and the securitization elements of what we do. Whether it's women, Black and Hispanic families, these community oriented organizations really do target those populations and it's a way for us to serve them better in the future, we believe.

We met with a small trade group association of Black CDFIs last month and we're on a journey right now to learn more about the business model. We want to know how HUD can serve them and we think that there is an opportunity for Ginnie Mae to really understand what kind of lending they do, what business models they're using, and how access to liquidity could be potentially opened up so that they could do more.

These CDFIs do very small-scale work. It's very limited because they cannot maintain or manage much in their portfolios. If you have access to more liquidity, options and vehicles like you're able to offer through our securitization platform as an example. That could really change the game and really enable them to do a lot more for underserved communities. We are really taking a serious look at this, and I think there are ways to enable access for these smaller players.

We've done some things in the past at Ginnie Mae through the Federal Home Loan Bank System and their members, giving them access to our platform through an aggregation model and the Federal Home Loan Bank of Chicago’s Mortgage Partnership Finance program. That really helps small players get access to larger systems.

We’ve been looking at all kinds of things. Ginnie Mae doesn’t have the concept of the cash window like Fannie Mae and Freddie Mac do. There were other structures and potential aggregation models that we could look to. This effort is in its infancy. We’re listening right now and trying to understand. The answer may not even be a model that we've done before. It may need to be something entirely new that would work for this set of stakeholders.

Will you address small nonbanks’ concerns about proposed capital standards?

We put out the Ginnie Mae request for input on issuer eligibility standards last year, and received feedback through the Fall of 2021. We are still in the process of evaluating that. To your point, one of the big concerns is just what does this mean for smaller issuers? Smaller participants would need to maintain capital requirements that are bank-like and potentially very difficult because their business models are so different from depositories.

We’re taking that very seriously. Access to credit and equity is such a driving force in the work of the Biden administration and with the agenda that [Department of Housing and Urban Development] Secretary [Marcia Fudge] has set forth, we are really trying to put this lens on everything. That includes this work. Smaller players shouldn't be denied access to a system because of their size.

Fannie Mae and Freddie Mac just put out their requirements [for counterparties] and there are some differences. I know that there are still concerns across the industry about what this means for the nonbank population, especially their ability to maintain capital. We’re working together, we’re talking to each other and collecting feedback. No final rulemaking will occur until we sort out all of those issues and ensure that we’re doing something that advances an equitable housing-finance system. That’s a No. 1 priority for me, and speaking to acting [Federal Housing Finance Agency] Director [Sandra] Thompson, I know it’s a huge priority for her as well.

How are expanded modifications in Ginnie Mae pools faring?

The White House has led an interagency group through the pandemic to make sure that changes all the insuring agencies made to modification programs basically matched solutions in the secondary market. It’s important we have outlets for servicers trying to mitigate all the loans in forbearance. USDA and VA have both put out a 40-year loan modification program. FHA put out a proposal on what they call their drafting table for a 40-year modification option as well. I think this is another tool in their toolkit that they need, especially as interest rates go up to support people through recovery from the pandemic. Ginnie Mae last year announced and made the capability of securitizing those mortgages possible.

That was not something we were able to do pre-pandemic. To ensure that those loan modification programs allowed for maximum affordability, the 40-year option was needed. We have now securitized and have a number of pools active in what we call extended term pools.

We also really accelerated the digitization of our platform, making it possible to sign mods digitally. The VA had a lot of people who needed to do that for modifications and refinances.

When I was at the Urban Institute, we had the Mortgage Servicing Collaborative and did a series of research papers, one of which was about limitations the FHA had if there was a disaster or a bad economic cycle. We didn't expect the pandemic to happen at the time we were writing it, but it did.

I know that all the agencies are looking at those pandemic-era relief measures and which of these things we should just go ahead and make the future way in which we do loss mitigation? They’re a significant step forward. These are much improved processes that could help borrowers who get government loans and maybe run into trouble or another economic downturn in the future.

Will you build on your advocacy work around small loans while at Ginnie?

We've been looking at it and Congress has been focused on small-dollar loans. Here’s the thing: in housing, the definition of “small,” or rather the market, has changed with home price appreciation. We were looking at loans below $70,000, and there were a lot of them, back when we originally looked at this. I think there is a huge opportunity to do some work in the secondary market to really make the liquidity and access more attractive.

For a lender, it’s really a matter of the cost to originate. A loan that’s $100,000 and a loan that’s $1 million has the same cost. I think there is an opportunity for us to look at ways in which we can incentivize more small-dollar lending, and models we can use. CDFIs make a great deal of small loans. A lot of them don't have access to the secondary market. They’re very limited as to what they can do in Appalachia and other places where there is a lot of affordable housing, but people can't get the financing for it.

Ginnie Mae definitely has a role to play in this in terms of how we can make access to housing more equitable by pooling small loans together and making it more economically advantageous for the lenders to do that business. It’s one of the things I care about, and I know [HUD’s] secretary cares a lot about. She’s from Cleveland and that’s another market that has affordable housing people have a hard time getting financed.

Would you also take steps to ensure small loans can be refinanced?

During the refinance boom, there were so many stories I heard about this issue, particularly when it came to elderly people. In households with really small balances on their mortgages, many people could not get the attention of a bank. They could have cut their payments in half by refinancing but could not get anyone to pay attention to them. That’s unacceptable in my view. There’s so much we could do in that space and really help a lot of people.