On Thursday, the Office of the Inspector General (OIG) of the U.S. Department of Housing and Urban Development (HUD) announced that it is initiating an inquiry into how Ginnie Mae monitored Reverse Mortgage Funding.
The OIG is also looking into Ginnie Mae’s extinguishment of the failed lender from the company’s Home Equity Conversion Mortgage (HECM)-backed securities (HMBS) program.
“Providing oversight of Ginnie Mae’s $2.4 trillion mortgage-backed securities (MBS) portfolio is a priority for my office, and we have identified managing counterparty risk as a top management challenge for HUD,” said HUD Inspector General Rae Oliver Davis.
In December 2022, Ginnie Mae seized RMF’s HMBS portfolio due to the bankruptcy, and the resulting stresses contributed to the decision, Davis explained.
Davis said her office initiated the inquiry “because extinguishing issuers and seizing their portfolios places significant stress on Ginnie Mae’s operations.”
She explained that the investigation will take stock of the full circumstances that led to seizing the portfolio, as well as the historical business practices of Ginnie Mae’s oversight during RMF’s time as part of the HMBS issuer program.
“We will examine Ginnie Mae’s oversight of RMF throughout its history as a Ginnie Mae issuer, as well as the actions Ginnie Mae took to assess and mitigate risks presented by RMF as a counterparty,” Davis said. “Our inquiry will include interviews, data gathering, and analysis of compliance with laws, regulations, policies, and procedures related to Ginnie Mae’s oversight of RMF.”
HUD’s OIG directs anyone with knowledge of “potential fraud, waste, abuse, misconduct or mismanagement” related to this inquiry to contact the HUD OIG hotline at (800) 347-3735. An electronic form is also available.
The size and complexity of the RMF HMBS portfolio has been an issue for Ginnie Mae since the seizure.
RMF was the largest HMBS issuer in Ginnie Mae’s program by 2016, and its portfolio size today comprises roughly one-third of the full HMBS portfolio, according to data from New View Advisors. Its total outstanding share of the market has slightly declined throughout 2023.
Assuming the RMF portfolio, the government company later said, required additional staffing and operations resources to more effectively manage the portfolio.
In March of this year, Ginnie Mae requested $61 million for fiscal year 2024 in a budget request submitted to Congress by the White House — or $20.6 million higher than the 2023 enacted level.
“We continue to spot new issues as we take the RMF portfolio in-house,” Ginnie Mae’s budget request document stated. “It has become clear that the HECM program requires enhanced governance across how Ginnie Mae makes decisions and across how we assess reverse Issuers and the risks they bring.”
In October, warehouse lender Texas Capital Bank (TCB) filed a lawsuit in the U.S. District Court for the Northern District of Texas against Ginnie Mae, alleging that the government-owned company “extinguished, in return for no consideration, TCB’s first-priority lien on tens of millions of dollars in collateral” stemming from the Federal Housing Administration (FHA)-sponsored HECM program.
The bank claimed that Ginnie Mae induced TCB to provide critical financing to support the stability of RMF’s draws and the HECM program, “Ginnie Mae seeks to declare by fiat that TCB’s only recourse for repayment is RMF—a bankrupt entity with few if any assets.”
A representative of the HUD OIG told RMD that the “lawsuit by Texas Capital Bank against Ginnie Mae played no role in our decision to initiate the inquiry.”
The HMBS program “provides capital and liquidity for [FHA]-insured reverse mortgages, an essential financial solution for a growing number of senior citizens,” according to Ginnie Mae. “HECM loans can be pooled into [HMBS] within the Ginnie Mae II MBS program. They also can serve as collateral for Real Estate Mortgage Investment Conduits (REMIC) backed by HMBS (H-REMICs).”
Ginnie Mae itself does not originate or invest in loans directly, but instead serves as a “guarantor of securities issued by approved lenders who participate” in its programs.
Ginnie Mae did not immediately return a request for comment.
This story has been updated with a comment from the HUD OIG, and could be further updated with any new information that becomes immediately available.