Ginnie Mae to Start Stress Testing Issuers

Ginnie Mae already has plans set in place to monitor its issuers’ operations, but they plan to take it to the next level, according to an article published this week on National Mortgage News.

In hopes of troubleshooting more effectively in the future, the plan is to model how the liquidity of companies that issue Ginnie Mae mortgage-backed securities would look under stress, the article states.

“With rate changes and delinquency changes changing the whole complexion of an issuer, just getting the snapshot of their financials periodically isn’t enough,” Ted Tozer, president of Ginnie Mae, said to National Mortgage News. “We need to be more dynamic to understand how close they are to the tipping point. Then we could actually see some of them deteriorating to the point where things are going to happen. That would give us time to remediate. That gives us time to counsel.”

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Currently, Ginnie’s traditional customer base is already subject to stress tests under the post-crisis regulatory regime, but nonbanks are not.

This new implementation will be extremely helpful managing nonbanks, especially because some of the more active mortgage-backed securities (MBS) issuers in this group have unseasoned portfolios.

Because banks don’t necessarily stress test the liquidity risks specific to Ginnie Mae, the agency plans to stress test them as well.

“We’re going to have to regimen that all issues will go through whether they are banks or nonbanks,” Tozer said in the article.

It was suggested that even though the stress tests may not be on the horizon right now, issuers should examine their available supply of ready cash to make advances to bondholders that potentially wouldn’t stand up to a shock, Tozer explains in the article.

Read more at National Mortgage News.

Written by Alana Stramowski

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  • If this occurs at HMBS issuers, it would not be surprising to see all but a few of our largest issuers surviving such tests. If that is the case then we can expect to see some large banks with FHA issuance facilities taking on HMBS issuance but only that function in our industry. In that case current HMBS issuers who cannot withstand such testing can expect to see the profit margins on their originations drop significantly.

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