Ginnie Mae capital requirements look manageable for us: PennyMac

PennyMac as of June 30 had a capital ratio in line with new Ginnie Mae requirements that have drawn concern from some other players, executives said at an investor meeting Wednesday.

“We are in a very good position across both entities in terms of meeting those requirements on a pro forma basis,” Chief Financial Officer Dan Perotti said at the 2022 Barclays Global Financial Services Conference, commenting on the broader rule set containing the capital requirements. Perotti referred to both publicly-traded units, PennyMac Financial Services and PennyMac Mortgage Trust.

At the end of the second quarter, the capital ratio for PennyMac’s origination and servicing unit, which serves as a Ginnie Mae issuer, was well over the required 6%, even with the “punitive” 250% risk weighting that mortgage servicing rights have under the rule.

“We still have a significant amount of room to be able to continue to grow our MSR portfolio and not run into any issues in terms of the risk-based capital requirement,” Perotti said.

PennyMac’s ability to meet the new capital requirements which go into effect late next year, and the assurances that it still left the company with bandwidth to keep buying MSRs, are significant because the company is a key issuer and servicer of Ginnie Mae-backed mortgage bonds.

Not every company will be in that position, which could lead to some consolidation and servicing sales, PennyMac executives at the conference said. Because Ginnie’s risk weighting for MSRs is not limited to the ones it backs, those sales could include government-sponsored enterprise servicing.

PennyMac also anticipates being able to meet liquidity requirements in the broader set of new counterparty requirements put forth by the GSEs’ regulator, the Federal Housing Finance Agency, and Ginnie.

“We’re significantly in excess of…the increased liquidity requirements,” Perotti said.