Ginnie Mae Concerned with Retreat of Commercial Banks From Home Lending and Servicing


On September 23rd, Ginnie Mae released a white paper entitled "An Era of Transformation," highlighting how mortgage lending in the United States has changed since the 2007-08 financial crisis. One change of particular concern to Ginnie Mae is the retreat of commercial banks from home lending and servicing. Ginnie Mae writes:

"In light of Ginnie Mae’s dependence on a sufficient supply of capable and willing private market firms to support the mortgage backed securities it guarantees, decreased levels of participatory interest of some of the largest and strongest residential finance firms is not a welcome development."

According to the paper, Ginnie Mae attributes the post-crisis bank retreat to the following three factors:

  1. The impending imposition of capital standards (via the Basel III standard) that could have the effect of penalizing the ownership of MSRs.
  2. A recognition that the servicing organizations that banks had constructed over time were inadequate to the current era of high numbers of defaulted loans and more onerous regulatory standards. And additionally, an accompanying unwillingness to invest in the re-engineering that would be necessary to change this.
  3. The incurrence of enormous retroactive costs, in the form of settlements and penalties that have made mortgage servicing appear to be a much more challenging and economically uncertain business line than had been believed to be the case.

Read the report here.

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