In 2018, Ginnie Mae
developed a set of revisions to the MBS Guide’s treatment of counterparty risk,
updating what is required to ensure the overall financial health of the
Issuers who make guaranteed pass-through payments to Ginnie Mae MBS investors. The
revisions are published in three installments: The first two came in November
2018 (APM 18-07) and
March 2019 (APM 19-02), and
Ginnie Mae is releasing the third today in the form of APM 19-06.
This post provides useful information about a few of the
items in APM
19-06, reflecting views about counterparty risk that we want to be sure
Issuers and other stakeholders understand. Each of these policy enhancements
was originally highlighted in the “Ginnie
Mae 2020” report in 2018.
1.
Risk Parameters. We have increasingly
incorporated additional guidance about risk into the MBS Guide. A prime example
is Chapter 3, Part 21, Section B, which describes acceptable risk parameters,
as well as situations that may represent departures from acceptable
risk.
In APM 19-06, we add a new item to the list of situations of concern:
Secured debt that is greater than 60% of gross tangible assets. This metric,
which is utilized in rating agency methodology, is important because an
institution whose assets are heavily encumbered has less flexibility to use
them to raise liquidity, should the need arise. While we are not stating a
preference for unsecured debt nor are we establishing 60% as a hard compliance
threshold, we are putting Issuers on notice that this metric is being closely
monitored and that secured debt in excess of the stated level could impact
future program management decisions.
2.
Concentration. Similarly, in Chapter 4,
Part 8 and Chapter 21, Part 3, we introduce concentration of servicing or
subservicing as a factor that could be included in our evaluation of a
servicing transfer or subservicing approval request. This reflects the widely
held view that concentration risk is a fundamental concern of portfolio
management. Currently, Ginnie Mae does not have market share limits for Issuers
or subservicers, and none are imminent. However, as the residential finance
landscape continues to evolve, this issue needs to be part of the dialogue and,
accordingly, we have introduced it to the MBS Guide. We understand that policy
actions on this subject could have a significant impact on program participants
and should be developed with ample opportunity for input by stakeholders.
3.
Required Ratings. Finally, we are
requiring that issuers whose portfolios exceed certain size thresholds obtain
external servicer or credit ratings, as explained in Chapter 3, Part 18. As
stated in “Ginnie Mae 2020,” we believe that “Issuers who attain a certain
level of prominence within the housing finance system should be expected to
make greater investments in transparency compared to other Issuers.” It is
likely that the required rating thresholds will be utilized in the
implementation of other policy actions in the future, since as we have said in
other places it is less appropriate than in the past to manage the MBS program
on a one-size-fits-all basis.
The publication of APM 19-06 concludes our planned
counterparty risk APM series, though we will certainly continue to work on this
subject and, as a result, see more changes to the MBS Guide.
Over the coming year, our efforts will be centered on the
three topics we identified in our recent “Progress
Update: Ginnie Mae 2020” report: Capital requirements, stress testing and
resolution planning report. These will help constitute a “holistic framework”
for managing counterparty risk as a guarantor and narrow the gap that exists
between the prudential regulation standards that apply to federally insured
banks and the various program standards that govern non-banks. These three
focus areas stand to be a major part of our dialogue with stakeholders in the
period ahead.