At an industry conference on Monday, experts wondered who may replace any departing buyers of mortgage servicing rights after Ginnie Mae's new capital rule goes into effect.
Banks have limited appetite for MSRs under their regulatory framework, and at least one publicly traded nonbank,
Also, it's possible several mid-sized nonbanks may give up their Ginnie Mae approvals and sell any of the government loans they make to aggregators instead due to the new capital requirements, said Taylor Stork, chief operating officer at Developer's Mortgage Company at Information Management Network's Residential Mortgage Servicing Rights conference in New York.
"The vast majority of the loans being manufactured through this platform, this program, are nonbanks, and most of them are small," said Stork, who works with a community lending group.
Banks may get a relative advantage due to the new nonbank capital restrictions, but they still lack incentive to increase their stake in Ginnie Mae MSRs, in addition to facing regulatory barriers, other panelists said at the conference.
"They can't. The cost of servicing is too high," said Chris Whalen, an analyst that's worked with Ocwen.
Unless some way to fill the gap is found, the capital rule — which has already been pushed out by a year — "may even get further extended," said Nitin Dave, a board member at Nations Capital Services, during a separate panel.
A key challenge in filling the role could be required approvals from the government mortgage-bond insurer that restrict investor involvement, speakers on multiple panels at the conference said.
"Private capital can't just walk into the business," said Stork.
Private equity funds could purchase stakes in depositories or nonbanks that work with the government mortgage-bond insurer. However, the size of the stakes allowed is extremely limited in New York, a key state, said Whalen.
Ginnie has discussed the possibility of issuing a license that would allow an issuer to be the manager of an entity, according to Whalen, but he said the concept discussed could require a substantial investment to protect the government agency from counterparty risk.
In the end, the capital rule could leave Ginnie MSRs in the hands of the largest issuers, hedge funds and
"That would be the new foundation," he said.
While speculation abounds around the rule's knock-on effect on the market "it hasn't really shown itself yet," said David Sheeler, president at Freedom Mortgage. Freedom remains a "huge supporter" of Ginnie MSRs, he said.
Sheeler said a more immediate challenge could be loss mitigation for government loans which, although insured, are made to credit-sensitive first-time buyers who are finding access to foreclosure alternatives tougher due to pandemic relief's phase-out in a cooling housing market.
Loss mit is "getting harder and harder," Sheeler said, noting that the recent end to partial claims previously available for Department of Veterans Affairs-guaranteed loans could prove to be a particular concern.
