Ginnie Mae sets sights on a permanent liquidity facility

Ginnie Mae has taken steps to help make financing for issuer liquidity available in recent years, including during the pandemic, and now its leadership is looking into having a more established vehicle for this that could serve both its bank and nonbank issuers.

“We need to have something permanently in place for that kind of an event for the future,” President Alanna McCargo told attendees at a Housing Finance Strategies conference on Wednesday. “That is something that we are very laser-focused on.”

McCargo sees the risks that Ginnie needs to address growing, which is why — in addition to establishing a permanent liquidity facility like the pandemic-era pass-through assistance program — it’s updating counterparty requirements with a nonbank capital rule that’s gotten mixed reviews from some issuers.

Nonbanks need more oversight because the role they have increasingly played in the servicing and financing of government loans has gotten very large, making millions of American homeowners reliant on them, she said.

“The most important thing to us at Ginnie Mae given this increased size is that [issuers] are successful, that they are healthy, and then that they have access to liquidity in all times through all economic cycles, because the people that would be hurt by them being hurt are very vulnerable populations,” McCargo said, referring to the low to moderate income borrowers that the government lending system serves, many of whom come from the Black and Hispanic communities with disproportionately low homeownership rates.

She expressed concern about current monetary policy and the possibility of a recession that could increase unemployment and delinquencies for the government loans. Ginnie and its issuers ensure payments from these loans reach bond investors after securitization. Other government agencies insure or guarantee the mortgages at the loan level.

“Right now this sector has a lot of risks that we need to be addressing and looking at,” McCargo said. An established liquidity facility, in tandem with the new counterparty standards, could help the market get out in front of them, she added.

While the liquidity facility Ginnie stood up during the pandemic got little use, it was because other government actions taken to address the risks at the time led to a lending boom. The next time the industry faces turbulence, it may not be so lucky, McCargo said.

“It ended up not even being needed because we had monetary policy that took rates down, and refinances really helped save the day,” she said. “We are not likely to see that in a future incident.”