When it comes to liquidity for privately held independent mortgage banks, cash management is the most important metric to watch, a panel said at the Mortgage Bankers Association's annual convention.
"Even before COVID-19, nonbank lenders have been under scrutiny by outsiders as a liquidity crisis in the making," said Pam Cooper, chief financial officer at Citywide Home Loans.
For example, as the issuer base for Ginnie Mae securities shifted to nonbanks from banks, the agency's then-President Ted Tozer expressed concern about these companie
Cash management for nonbanks is like dealing with "spinning plates" and trying to keep one from dropping, Cooper said at the MBA panel this week. It is subject to external factors like margin calls from warehouse lenders and secondary market pricing.
Given those factors, American Financial Resources' approach to liquidity embraces the belief that "anything can happen at any moment," said company President Laura Brandao, who noted the firm was prepared when COVID struck in March.
"One of the things we learned from all of this volatility that occurred in March is cash is king," Brandao said. "We're privately held, there are six partners and it's up to us to make sure that everything is always well funded. Our philosophy really has not changed from before March until now."
Others, like The Money Source, were able to build a cash cushion during the crisis, since Ginnie Mae prepay speeds were so high. The company took advantage of the timing differences, setting aside cash before it needed to make the remittance to the agency. Doing so helped to cover servicer advances, its CFO, Kirstin McMullen said.
TMS was using "all these tools to manage cash" before March because it is also privately funded, said McMullen. Because of all the cash generated from originations, things are certainly less stressful at the company, she said.
"Everybody likes to talk about the origination side and the servicing side being a natural hedge, and for us, we really did get to experience that," McMullen said. TMS was using its origination pipeline to hedge its MSRs, so there was less cash outflow even though it did have large margin calls.
"But you can't change your course just because there's more [cash on hand]; you can't become reckless," Brandao added.
Meanwhile, Ginnie Mae servicers have not utilized to any great extent the agency's
At the end of August, just $4.8 million of combined amounts advanced and outstanding went through the PTAP for COVID-19, according to Ginnie Mae. July was the high-water month at $5.3 million.
"The PTAP is a great example of where government can step in and assist when policy is implemented that creates an immediate shift in liabilities," Brandao said. "There's a couple of reasons why I suspect why lenders were not actually utilizing it. I think one of them is everybody's a little nervous, even though everyone has said 'use it, it's OK, it will not be looked at as a negative.' I think that everyone is still a little hesitant in how they will be judged if they actually utilize it."
Plus, McMullen said that Ginnie Mae indicated the facility is to be used as an "absolute last resort," which created a negative connotation. She added that because of all the prepay volume that generated cash for servicers, the PTAP wasn't needed.
Even though the situation for nonbank servicers is turning out much better than many thought back in March, they can't get complacent.
"We have to come to the realization that we can never get comfortable, we can never think 'we survived 2020 and what was thrown at us,'" Brandao said. "I think we have to continually be watching and being protective and be smart, make sure we have our cash is king [mantra] and we're watching every maneuver because we will continually have that light on us."
