Ocwen deal and Ginnie Mae milestone point to FHLB program focus

A milestone in Ginnie Mae’s issuance under the Federal Home Loan Bank of Chicago’s Mortgage Partnership Finance program, and a new servicing pact at the Indianapolis FHLB’s equivalent this week highlight renewed attention to public policy regarding this part of the secondary market.

Total Ginnie/MPF mortgage-backed securities issuance has now topped $3 billion, according to an announcement Wednesday. And FHLB’s Mortgage Partnership Program, through which 100 institutions originated roughly $2 billion annually, announced Tuesday that it will be selling servicing to Ocwen subsidiary PHH.

While the loan volumes involved have been meager relative to those of other government-related entities like Fannie Mae and Freddie Mac, secondary market alternatives like MPF are something Ginnie’s new chief, Alanna McCargo, has been interested in as a means of supporting local financial institutions.

“The MPF program is an important partnership for making the Ginnie Mae MBS system accessible to small community banks and lender partners, and this $3 billion milestone demonstrates its value in the marketplace,” McCargo said in a press release.

Giving operational responsibility for servicing to a large entity with the ability to scale like Ocwen supports more growth in community lending through such programs, according to FHLB officials.

“FHLB is always looking for ways to improve the liquidity and pricing we can offer our members, and PHH was a natural choice given its experience in co-issue,” said Dan Green, a vice president and senior director of MPP at FHLBank Indianapolis, in a press release.

The partnership serves as a blueprint that can be replicated by other FHLBs, Ocwen noted in the release.

The renewed interest in programs like Mortgage Partnership Finance comes at the same time as a broader re-examination of the FHLBs’ relevance in the current market and renewed questions about whether it’s time to reconsider whether nonbanks should have more access to the system as a means of revitalizing it. The Urban Institute, a think tank McCargo previously worked for, has done research conditionally recommending this as a means of furthering affordable housing goals, contingent upon regulatory authority and ability to manage nonbank risks. 

While nonbank lenders have welcomed McCargo’s interest in providing additional loan outlets, when it comes to the FHLBs, mortgage companies may currently be more interested in how those entities could help managing their exposure to servicing risks related to having to advance funds to investors on borrowers’ behalf when consumers can’t pay, said Scott Olson, executive director of the Community Home Lenders Association.

Depositories often provide lines of credit to cover these advances, but market disruption during the pandemic illustrated that their willingness to provide it can be shaky. With refinancing volumes and profits falling, nonbanks have had less cash available to the float on obligations between when they have to be covered and when government mortgage insurance claims are reimbursed.

“What we have been asking the Federal Home Loan Banks for is to backstop lines of credits for making these advances,” Olson said. “It could be fantastic help at virtually no risk because advances do get reimbursed when the claim is made.”