Why lenders might be slower to expand credit to first-time buyers

Analysts are showing renewed concern about the financial strain on the government mortgage market that serves low income, entry-level buyers, which has been slow to expand credit as economic conditions have improved.

Kroll Bond Rating Agency analysts on Thursday registered some uncertainty about nonbank companies that make or collect payments on loans in Ginnie Mae securitizations, noting that these loans face higher forbearance rates, and that companies that service the mortgages bear more responsibility for temporarily advancing payments that borrowers have suspended.

Loans in Ginnie Mae securitizations have had the largest percentage forbearance relatively consistently since the CARES Act was enacted last spring. The May 10 Mortgage Bankers Association forbearance report found that the amount of Ginnie Mae loans in forbearance dropped 20 points week over week, to 5.82%. That compared with a 2.32% share at Fannie Mae and Freddie Mac, which had a drop of 10 points from the week before.

In a report assigning to nonbanks a “lower qualitative assessment vis-à-vis other financial sectors such as deposit-funded commercial banks,” KBRA analysts also noted that the issue is a particular concern for the Ginnie Mae sector. The nondepository share of securitized Ginnie Mae loan servicing is larger than what’s seen in other sectors of the mortgage market, they noted.

As a result, KBRA analysts are starting to differentiate their outlooks for companies based on Ginnie Mae and nonbank exposures.

To be sure, while the Ginnie market’s lagging other market sectors, it’s in better shape than it would be without public backing, and the government agency that oversees it has taken steps to monitor and mitigate nondepository risks.

While Ginnie Mae issuance has wavered a little, it did increase to another record high of nearly $89.7 billion in April from nearly $82.3 billion in March. A year ago in April, Ginnie Mae issuance was just $63.8 billion.

KBRA analysts did reaffirm other reports, which note that while there is concern about nonbank credit exposures, it exists to a lesser degree than it did during the Great Recession because underwriting has been relatively tighter and home values have been appreciating.