Ginnie Mae is taking its risk management efforts to the next level, this time with plans to update program requirements relating to the loan documents that serve as collateral for securitized pools of loans.
The agency plans to use four “guiding principles” as it undertakes the comprehensive review and reform of the policies and procedures relating to the management of pool collateral via third party document custodians, Ginnie Mae said in an announcement last week.
The need for reform became apparent as a result of the after-effects of the financial crisis and the “unprecedented” level of Mortgage Servicing Rights (MSR) transfer requests in recent years, said Michael Drayne, Ginnie Mae’s senior vice president of Issuer and Portfolio Management.
“Every one of the nine million loans in Ginnie Mae pools is secured by a collateral loan file, said Drayne in a written statement. “As our business has grown, and the ownership of so many of the underlying MSRs has changed hands since the financial crisis, it has become even more critical to ensure that our program for managing this documentation evolves to meet changing circumstances and take advantage of technological progress.”
To this end, Ginnie Mae plans to engage issuers, document custodians and other stakeholders in a dialogue about how to most effectively update the program requirements and infrastructure relating to pool collateral.
“We plan to take a thoughtful approach and expect that this will be a multi-year effort,” said Drayne.
The four principles Ginnie Mae will address include the areas of policy, integration, loan level and enforcement.
Under policy, Ginnie says it will re-examine current policies to consider whether they adequately reflect and mitigate actual risks and the current and foreseeable state of available technology.
For integration, the agency plans to document custody functions and information that should be more closely integrated into Ginnie Mae’s systems.
As for the loan level, Ginnie Mae says information about the status of pool collateral should be managed at the loan level, and not merely the pool level.
Finally, the enforcement principle extends to the methods by which Ginnie Mae enforces compliance with its policies, which will be re-examined and harmonized with its broader practices for managing issuer relations.
These collective efforts signal the most recent undertaking from Ginnie Mae in its ongoing strategy to manage risk in the mortgage market.
Last October, the agency announced several new issuer requirements, including new net worth requirements for forward mortgage issuers, though not applying for issuers of HECM-backed mortgage securities (HMBS).
HMBS issuance recently hit an 18-month high as issuers created $874 million in new HMBS pools in May, according to the most recent commentary from New View Advisors, which tracks issuance via publicly available Ginnie Mae data. Thus far this year, HMBS issuance is averaging just over $736 million per month—well above the $550 million monthly average in 2014.
“The market is changing rapidly in terms of types of Issuers and counter parties that Ginnie Mae is dealing with,” said Ginnie Mae President Ted Tozer in a written statement last October. “We have an obligation to be diligent in monitoring risk and ensure that our Issuers are successful.”
Current requirements for issuers to review their document custodians are detailed in the Document Custody Manual (Appendix V-1) of Ginnie Mae’s Mortgage Backed Securities Guide 5500.3, Rev. 1.
Written by Jason Oliva