Ginnie Mae makes progress on long-sought modernization items

Ginnie Mae, an arm of the Department of Housing and Urban Development that guarantees mortgage-backed securities, has announced progress on some key industry modernization requests.

The government corporation is expanding Ginnie's data collection to include some important additional information, and separately, taking some next steps in efforts to improve processes around financial and insurance requirements.

Ginnie's addition of custodian and servicer/subservicer identifiers in investor reporting is particularly notable because it lays the groundwork necessary to address a longstanding challenge in transfers, said Angel Hernandez, chief strategy officer at Stavvy.

"It's hard to split pools because all of your tracking was always at the pool level. By having the custodian ID and the subservicer ID, that is enabling you to have this ability to then build on that for protocols or business rules that you want to put in place for when collateral moves," he said.

Meanwhile, other updates aim to better align net worth and liquid asset portions of the audited financial statement with policy changes, and allow Ginnie MBS issuers to do things like update the status of required bonds or insurance coverage using more modernized technology

"The most significant part is that it provides the IT framework to support the standardization of capital and liquidity requirements that the agencies worked on a couple of years back," said Hernandez, who previously served as a policy specialist and director at Ginnie.

In addition to those requirements, the majority of which became effective last year, the modernization includes some mandates specific to manufactured housing loan securitizations, which Ginnie has been rolling out on a staggered basis this year.

Ginnie will likely need to further modernize automation around financial requirements if risk-based capital requirements for nonbanks set to go into effect by year-end move forward. 

Nonbank RBC requirements were originally scheduled to go into effect around the time of earlier revisions, but were delayed after some issuers expressed concerns about implementation challenges.

Meanwhile, the modernization done to date around policy and technology fulfills promises Ginnie made earlier this year when it said it would be moving document submission functionality to a new platform.

The updates include requirements for designated officers at issuers certifying audited financial statements and annual insurance submissions to use a soft token. They also provide the flexibility to submit insurance and financials separately to accommodate different timing cycles.

"Ultimately, this is more efficient than the previous process so it minimizes risk of operational default," said Hernandez.

The industry has been waiting for quite some time for some of these initiatives, notably it had pledged just prior to the pandemic to start looking into ways to address transfer challenges arising around the inability to split pools, which the new data collection may help to fulfill. 

While the pandemic may have played a role in interrupting that effort, it's also true that HUD has budget constraints that tend to contribute to slower progress on initiatives than the mortgage industry users of its systems would like.

"This is why CHLA has been consistently calling for more Ginnie Mae funding," its Executive Director Scott Olson said. "This is a sophisticated market-based program, they have to have the resources and the staff to operate it that way."