CHLA joins calls for Ginnie Mae to rework proposed capital standards

Ginnie Mae’s proposed nonbank counterparty capital standards should be withdrawn or reworked around the needs of small players whom they impose a disproportionate burden on, the Community Home Lenders Association said in a press release Thursday.

A broad range of mortgage industry officials and experts also have protested the plan detailed in a request for input at Ginnie, but some big players have been more sanguine about it than smaller ones. Analysts have questioned whether it will be a constraint for large companies, or an opportunity if the plan forces less well-capitalized lenders to sell their government-insured mortgages to correspondent channels that are in the business of buying closed loans.

Bank-like capital standards, which have long been a threat for small non-depositories, would be less applicable to nonbank models, the CHLA argued. The group’s letter reiterates several points the group made in 2019 when it last seemed as though Ginnie would consider them.

“This RFI proposal would reduce access to mortgage credit, disproportionately affect smaller issuers, and increase issue concentration.” the group said in the letter. “Thus CHLA requests that Ginnie Mae withdraw the proposal — or rework it to focus on larger issuers.”

Ginnie has responsibility for ensuring that mortgage cash-flows get advanced to investors after loans, which other government agencies insure, are securitized. So in managing counterparty risk, it must ensure that the companies it works with follow through on their obligations.

While smaller companies with less capital may have less of a financial buffer against financial failure, it’s the demise of large players like Taylor, Bean & Whitaker that have historically caused the most disruption at Ginnie, the CHLA noted in its letter.

“The risks of resolution for the smaller [independent mortgage banks] are so low that we just don't think it's appropriate to set the bar so high,” said CHLA Executive Director Scott Olson in an interview.

In contrast, CHLA noted in a separate press statement that it found model prudential standards set recently for nonbank servicers by the Conference of State Bank Supervisors reasonable, following some changes made to an earlier version.

The group praised the CSBS’s decision to “[encourage] states to set their own de minimis volume exemptions for smaller servicers and [eliminate] proposed draft requirements that are duplicative of other existing agency requirements.”

Its only remaining concern is that the standards still duplicate some Ginnie and government-sponsored enterprise requirements, adding some layers of compliance that may be unnecessary.

“Smaller servicers already follow detailed Ginnie Mae and GSE servicing requirements that are redundant with the new CSBS state standards — so we continue to be concerned about unnecessary new compliance costs and burdens in multiple states — with little or no incremental regulatory benefit,” the CHLA said.