GAO pushes Ginne Mae to step up mortgage crisis drills

The Government Accountability Office is urging Ginnie Mae to increase its involvement in Financial Stability Oversight Council crisis-management exercises that explore outcomes when a huge nondepository mortgage servicer tanks.

The role Ginnie plays is key because nonbanks service over 80% of its insured securities, GAO said, citing Inside Mortgage Finance numbers. While Ginnie does face some nonpublic data constraints, it could have participated more fully, the GAO report states.

The U.S. corporation "did not identify or document lessons learned from the interagency exercise and lacks processes for doing so," the independent watchdog agency with ties to Congress said. Rectifying this would improve systemic crisis management, the GAO added.

Ginnie "should develop processes for participating in interagency exercises," said Jill Naamane, director of financial markets and community investment at the GAO, in a report to House Financial Services Committee Chair French Hill, R.-Ark.

Chief Risk Officer Gregory Keith, Ginnie's de facto president, said in a written response to the report that besides facing "unresolved information challenges" in the exercise, the Department of Housing and Urban Development affiliate had role constraints.

While Ginnie is authorized to govern mortgage companies to the extent they participate in its programs, "there is no express authority for Ginnie Mae to operate as a regulator to regulate nonbanks," said Keith, who has been with the corporation since 2010.

(Ginnie guarantees mortgage-backed securities but other entities back the collateral at the loan level.)

The GAO report acknowledges this is an issue, but added that this also heightens the importance of full participation in interagency risk-management exercises.

"The growing role of nonbanks in the housing finance system poses challenges to a federal oversight structure that is divided among multiple entities," the GAO said.

While Ginnie's role has limits, it does exert some control of servicing assets in nonbank mortgage failures in addition to bearing some partial responsibility for backing a large securities market that currently supports the financing of many U.S. mortgages.

An FSOC report last year suggested Congress should boost Ginnie's authorities to protect that market.

However, the composition of Congress has changed since then, shifting to Republican control which is likely to mean it will be more deregulatory than its predecessor when it comes to oversight of private institutions.

(That said, some think certain aspects of the FSOC's prior approach to nonbank risk management could persist.)

Ginnie Mae most recently seized some servicing assets in Reverse Mortgage Funding's bankruptcy.

HUD's former inspector general had been investigating the handling of that bankruptcy, some aspects of which Texas Capital Bank has challenged in court. (TCB alleges Ginnie promised it certain assets in return for providing financing then reneged on the deal.)

The status of the HUD watchdog's investigation has been up in the air since President Trump dismissed several IGs in a move a bipartisan group of legislators has questioned.

It's an open question as to whether there will be continuity in some recently implemented or greenlighted Ginnie Mae policies given the changes in Washington.

These include Ginnie's risk-based capital rule for nonbanks that took effect Dec. 31 and its HMBS 2.0 initiative in the market for Home Equity Conversion Mortgage securitizations. HECMs are reverse mortgages that allow older adults to withdraw equity from their homes.