Since the 2008 Financial Crisis, there has been a significant shift in the source of lending and servicing in the mortgage market from traditional depository banks to nonbanks, or independent mortgage banks (IMBs). This has been particularly pronounced in the government mortgage lending programs and in Ginnie Mae’s mortgage-backed securities (MBS) program–a trend Ginnie Mae first raised back in 2014.
IMBs have done a great job of meeting borrowers where they are, adopting new technologies and practices to better serve them, and helping millions of Americans achieve their dreams of homeownership. IMBs have been strong partners in advancing Ginnie Mae and HUD’s mission to expand access to affordable credit and housing to historically underserved communities, including low-to-moderate income (LMI) borrowers, seniors, veterans, and rural and tribal communities. However, these federal programs were originally designed when depository institutions were the predominant counterparties. With the changing landscape, it is important that we have a public conversation about what risks, challenges, and opportunities have arisen with the growth of IMBs in the mortgage market, and how these changes affect borrowers.
For over a decade, Ginnie Mae has been monitoring these changes and leveraging our existing authorities to develop a suite of risk management and oversight tools to address the varying risks, business models, and other considerations related to IMBs in the primary and secondary mortgage markets. We believe a holistic approach across all stakeholders is needed to identify and advance solutions that account for the evolved state of the housing finance system. With that in mind, Ginnie Mae worked closely with the members of the Financial Stability Oversight Council (FSOC), which published the FSOC Report on Nonbank Mortgage Servicing in May this year. The FSOC report provided an overview of the key challenges related to nonbank mortgage servicing, such as IMBs’ comparative sensitivity to the interest rate environment as a function of their reliance on private sector financing and their lack of income diversity due to the monoline nature of their businesses. It explored several areas where state and federal agencies could improve regulatory oversight, enhance or fortify assistance programs, and address certain risks by exploring potential new sources of liquidity. While the FSOC, by design, approached the issues identified through a systemic risk lens, at Ginnie Mae, we believe it is also critical to approach these considerations through the scope of our core mission: supporting a resilient, liquid secondary mortgage market, and borrower access to affordable credit and housing.
Durable sources of liquidity for IMBs are critical to maintaining access to credit for borrowers, and specifically, borrowers who may not otherwise have an opportunity to achieve their dreams of homeownership without the support of government lending programs and our MBS-issuing counterparties. When an Issuer fails, the borrowers they serve are directly impacted. Borrower challenges can range from confusion around their account transfer process to potential delays in payments being processed, and/or delays in payment relief if they are facing economic hardship. As important as it is to put working families into homes, IMB liquidity is critical to support sustainable homeownership during periods of market stress. In particular, it is LMI and minority borrowers who most benefit from the opportunity of first-time, or even first-generation, homeownership, and who stand to lose the most by an IMB failure in the mortgage market. This is why it is so important that we create greater understanding of the issues affecting mortgage market resilience and foster a public conversation about how to address these risks today while we have the time to prepare for and mitigate the consumer impact of a potential downturn.
Our Issuers are our partners, and their strength, resilience, and sustainability are critical for government lending programs and the borrowers we serve. We are confident that, working across the public and private sectors, we can drive meaningful change in a way that supports sustainable access to credit while protecting the financial system and consumers from harm. On October 15, HUD and Ginnie Mae are hosting a summit to discuss these important issues and begin to source input from across the federal government, private sector, and other experts and stakeholders. We invite you to join the conversation to help identify potential policy and market-based solutions that will further our shared missions to strengthen the mortgage market and ensure access to affordable credit and housing for borrowers throughout economic cycles.