Ginnie Mae [1] on Wednesday announced that issuance of its mortgage-backed securities (MBS) totaled $30.291 billion in December 2018. A breakdown of December issuance includes $28.166 billion of Ginnie Mae II MBS and $2.125 billion of Ginnie Mae I MBS, which includes $1.977 billion of loans for multifamily housing. A total outstanding principal balance of $2.042 trillion is an increase from $1.913 trillion in December 2017.
According to an article [2] in The Wall Street Journal, Ginnie Mae is concerned about risks from nonbank lenders, whose share of home loans has ballooned since the financial crisis. The agency, for the first time in years, demanded that lenders improve their financial metrics before receiving full approval to continue issuing mortgage bonds backed by them.
Ginnie Mae’s acting head, Maren Kasper, declined to name the firms but indicated that it included both large and small lenders. She also noted that these firms have been receiving short-term approvals in the meantime, the article stated.
As reported in the publication, the agency also conducted stress tests of business partners, to check on their monthly cash-flow obligations under reduced loan production and increased delinquencies.
According to the article, 34 percent of securities issued by Ginnie Mae were serviced by nonbank lenders in 2014—the share of which has now increased to 61 percent. Two main reasons—a cooling housing market and mortgage refinancing falling to its lowest level in 18 years—have raised concerns about nonbank lenders’ ability to meet their financial obligations. The article also pointed out that a failure on the part of these servicers and losses thereafter could end up becoming a burden on the taxpayer.
While some in the industry believe that a robust post-crisis regulatory framework will help manage the challenges, others are skeptical as the system has never been truly tested.
Ginnie Mae I MBS are modified pass-through mortgage-backed securities on which registered holders receive separate principal and interest payments on each of their certificates. These include single-family, multifamily, manufactured home and project construction loans. Ginnie Mae II MBS are modified pass-through mortgage-backed securities for which registered holders receive an aggregate principal and interest payment from a central paying agent.