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Earlier this fall, the HUD Office of Inspector General (HUD-OIG) published an annual report, which examines top management challenges facing the agency in 2019 and beyond. According to HUD-OIG, the six top challenges are a result of “critical unaddressed internal or external risks” that impede the success of HUD’s programs. Identified challenges impacting HUD’s performance relate to (i) the availability of safe, affordable housing; (ii) the ability to protect FHA’s mortgage insurance funds due to, among other things, a lack of sufficient safeguards, losses due to home equity conversion mortgages, increases in Ginnie Mae’s nonbank issuers, and emerging digital mortgage risks attributed to technology and information security problems; (iii) the inability to implement and institute adequate monitoring and oversight of its operations and program participants; (iv) identified inefficiencies in administering disaster recovery assistance; (v) a failure to modernize technology and properly oversee the information technology infrastructure, which leaves the agency vulnerable to data breaches; and (vi) the ability to institute sound financial management governance, internal controls, and systems due to a “lack of strong, consistent leadership over an extended period.” HUD-OIG states it will continue to identify challenges and assist in implementing solutions to remediate weaknesses.
On July 3, the Department of Housing and Urban Development (HUD) published in the Federal Register an interpretive rule regarding the loan-seasoning requirement for Ginnie Mae mortgage-backed securities from the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), S.2155/ P.L. 115-174. The interpretive rule establishes that (i) any VA refinance mortgage that does not meet the requirements of the Act is not eligible to serve as collateral for Ginnie Mae mortgage-backed securities; (ii) any VA refinance mortgage that does not meet the Act’s requirements, but was guaranteed before the Act’s enactment are unaffected; and (iii) the Act does not prohibit Ginnie Mae from guaranteeing Multiclass Securities where the trust assets consist of certificates previously lawfully guaranteed with underlying VA refinance loans that may not meet the requirements of the Act. Comments on the interpretive rule must be submitted by August 2.
As previously covered by InfoBytes, Ginnie Mae issued All Participants Memorandum APM 18-04, which establishes (in accordance with the Act) that in order to be eligible for Ginnie Mae securities, the date of the VA refinance loan must be on or after the later of (i) 210 days after the date of the first payment made on the loan being refinanced; and (ii) the date of the sixth monthly payment made on the loan being refinanced.
On May 30, Ginnie Mae issued All Participants Memorandum APM 18-04 announcing changes to pooling eligibility requirements for Department of Veterans Affairs (VA) loans. The changes are in response to the “Loan Seasoning for Ginnie Mae Mortgage-Backed Securities” provision of the regulatory relief bill, Economic Growth, Regulatory Relief, and Consumer Protection Act, S.2155/ P.L. 115-174. (See previous InfoBytes coverage here.) APM 18-04 requires that, in order to be eligible for Ginnie Mae securities, the date of the VA refinance loan must be on or after the later of (i) 210 days after the date of the first payment made on the loan being refinanced; and (ii) the date of the sixth monthly payment made on the loan being refinanced. The new eligibility criteria is effective with mortgage-backed securities guaranteed on or after June 1.
Ginnie Mae also announced June 1 that it has temporarily restricted VA single family-guaranteed loans pooled by three mortgage lenders. Upon conclusion of the temporary restriction, each of the three lenders must demonstrate that (i) prepayment speeds are more consistent with equivalent lenders, and (ii) improved performance is sustainable.
As previously covered by InfoBytes, the VA recently released policy guidance in response to the regulatory relief bill, which includes a similar loan seasoning requirement as Ginnie Mae.
On February 8, Ginnie Mae announced that it had sent notices to a small number of issuers in the Ginnie Mae multi-issuer mortgage-backed security (MBS) program warning them about their VA mortgage loan prepayment speeds, which deviated from the norm and put the veteran benefit at risk. According to Ginnie Mae, the notices require the issuers to create a “corrective action plan that identifies immediate strategies to bring prepayment speeds in line with market peers.” Issuers unable to correct their performance risk losing access to Ginnie Mae multi-issuer pools. The warnings are a result of a task force formed between Ginnie Mae and the Department of Veterans Affairs (VA), to address refinance speeds and aggressive marketing in the VA loan space.
As previously covered by InfoBytes, Ginnie Mae also issued APM 17-06 which imposes tougher pooling standards on certain refinance loans. Additionally, the VA issued new policy guidance for its Interest Rate Reduction Refinance Loans (IRRRL) disclosures in an effort to assist borrowers in deciding whether the IRRRL is in their best interest, previously covered by InfoBytes here.
On January 25, Ginnie Mae issued an All Participant Memorandum (APM 18-02) announcing updates to multiple chapters of their MBS Guide. According to the memo, effective immediately, Chapters 3, 5, 9, 10, and 18 now provide expanded information about acceptable risk parameters for Ginnie Mae portfolios and applicable non-compliance consequences. Specifically, Chapter 3 is updated to include examples of violations of program requirements that Ginnie Mae considers outside of acceptable risk parameters, such as:
- “Rates of delinquency that are above the thresholds published in Chapter 18(3)(C) or that otherwise pose a risk to an Issuer’s responsibility to advance P&I payments to security-holders”;
- “‘Run-off’ portfolios, or business models that involve the recurring sale of substantially all the servicing created by issuance”;
- “Heavily-concentrated portfolios”; and
- “Recurring issuance of multi-issuer program packages that exhibit prepayment activity that is substantially different from that of comparable packages.”
Chapter 3 also includes examples of non-compliance restrictions that may be imposed, including but not limited to, requiring an Issuer’s portfolio to be recalibrated to fall within acceptable risk parameters.
Other MBS Guide updates include:
- Chapter 5. Expansion on risks associated with non-compliance of MBS program requirements, such as, (i) “denial of authority to issue additional securities;” and (ii) “the imposition of civil money penalties.”
- Chapter 9. Participation in a multiple Issuer pool is considered an event of non-compliance if Ginnie Mae has restricted, in writing, the Issuer’s ability to participate.
- Chapter 10. GinnieNET must be used for paperless electronic processing of pools submitted for immediate transfer of Issuer responsibility. Ginnie Mae reserves the right to reevaluate an Issuer’s participation in the Pools Issued for Immediate Transfer (PIIT) program based on compliance with Chapter 3’s applicable risk parameters.
Chapter 18. Failure to maintain delinquency rates may result in denial of participation in multiple Issuer pools, the PIIT program, and/or the imposition of additional financial obligations.
Last week, Ginnie Mae announced an All Participants Memorandum, APM 17-06, regarding pooling eligibility for refinance loans. According to Ginnie Mae, the purpose of the December 7 Memorandum is to expand the pooling restrictions announced last year in APM 16-05 to address frequent loan churning and quick prepayments. Specifically, for pool issuances on or after April 1, 2018, all streamline and cash-out refinance loans are eligible for Ginnie Mae I Single Issuer Pools and Ginnie Mae II Multiple Issuer Pools only if (i) six consecutive borrower monthly payments are made; and (ii) the first payment due date of the refinance loan must be at least 210 days after the first payment due date on the original loan. Refinance Loans that are fully underwritten and meet certain criteria will not be subject to the new pooling restrictions.
APM 16-05 remains effective until APM 17-06 becomes effective on April 1, 2018. Ginnie Mae will continue active monitoring for unusually rapid prepayment rates and will institute sanctions for noncompliance. Ginnie Mae also plans to publish revised pooling standards for premium rate loans in early 2018.
HUD IG Blames Ginnie Mae for Inadequate Supervision; HUD IG Concludes HUD Did Not Follow Requirements When Forgiving Debts
On September 21, the HUD Inspector General (IG) released an audit report of Ginnie Mae’s oversight of nonbanks in the mortgage servicing industry. The report found that Ginnie Mae did not adequately respond to the growth in its nonbank issuer base; a base, the report notes, that tends to have more complex financial and operating structures than banking institutions. The IG found, among other things, that Ginnie Mae may not be prepared to identify problems with nonbank issuers prior to default, requiring additional funds from the U.S. Treasury to pay back investors in the event of a large default.
On the same day, the IG also announced a report which found that HUD did not always follow applicable requirements when forgiving debts and terminating debt collections. The report determined that HUD’s review process for evaluating debt forgiveness or collection termination was not thorough enough to ensure that statutory, regulatory, and policy requirements associated with this process were met—such as ensuring DOJ approval was obtained when required.
On April 11, the Government Accountability Office (GAO) released a report titled, “Nonbank Mortgage Servicers: Existing Regulatory Oversight Could Be Strengthened.” The report analyzes data on the mortgage servicing market from June 2006 through June 2015 from Fannie Mae and Freddie Mac (collectively, the Enterprises), the Federal Reserve, and Ginnie Mae, as well as academic studies and research conducted by industry organizations, federal agencies, and others since the financial crisis. The report focuses in particular on the role of nonbank servicers in servicing privately securitized nonprime loans. According to the report, the percentage of mortgage loans serviced by nonbank servicers – which, according to market participants, tend to service more delinquent loans than banks – increased significantly from the first quarter of 2012 through the second quarter of 2015, but still account for less than a quarter of the overall mortgage servicing market. Concerns regarding the regulatory oversight of nonbank servicers are highlighted in the report, which comments on (i) the CFPB’s direct role in overseeing nonbank servicers’ compliance with federal consumer financial laws; (ii) state regulators’ various prudential and operational requirements for nonbank servicers; and (iii) Ginnie Mae and the Enterprises’ monitoring of nonbank servicer activities to manage risk exposure. According to the report, issues related to nonbank servicers’ “aggressive growth and insufficient infrastructure have resulted in harm to consumers, have exposed counterparties to operational and reputational risks and ... complicated servicing transfers between institutions.” Based on the findings summarized in the report, the GAO recommends that (i) Congress consider giving FHFA the authority to examine third parties doing business with the Enterprises; and (ii) the CFPB collect additional data regarding the identity and number of nonbank servicers.
On October 17, Ginnie Mae announced that it would be adjusting its minimum net worth and liquid asset requirements for Single-Family Issuers and Issuers that participate in at least two Mortgage-Backed Securities programs. For Single-Family Issuers, the minimum net worth will be $2,500,000 plus .35% of the Issuer’s total effective outstanding Single-Family obligations; the minimum liquidity will be either $1,000,000 or .10% of the Issuer’s Single-Family securities. For Issuers participating in more than one Mortgage-Backed Securities program, the new minimum net worth and liquid assets requirement will be adjusted so that they are “equal to or greater than the sum of the minimum requirements for all the program types in which the Issuer is approved to participate, as opposed to the highest program requirement.” The new requirements will be effective January 1, 2015 for those Issuers seeking approval in the new year, but for Issuers approved on or before December 31, 2014, the new requirements take effect beginning December 31, 2015.
This month, Ginnie Mae published a position paper titled “An Era of Transformation,” which describes changes in the mortgage lending market that stem from the 2007-08 financial crisis, and explains how Ginnie Mae intends to react to those changes. The key change in the mortgage lending market that the paper focuses on is the “rapid, substantial increase in the presence of non-depository institutions” in the face of the retreat of commercial banks from mortgage lending and servicing. In the face of this trend, Ginnie Mae intends to make a number of changes that issuers should take note of, including modifying its MBS program to accommodate the larger role of non-depository lenders; upgrading its abilities to assess the financial and operating capacity of its issuers; and taking steps to ensure liquidity in the market for MSRs. Ginnie Mae also intends to actively police that issuers are in compliance with program requirements, and when issuers fail, to move MSR portfolios to other approved issuers rather than seize and manage the assets itself.
- Warren W. Traiger to discuss "Community Reinvestment Act reform" at the New York State Bar Association Annual Meeting
- APPROVED Webcast: Periodic reporting: More than just clicking “submit”
- Buckley Sandler Webcast: Tips for this year’s FHA annual recertification and what the shutdown means
- Jessica L. Pollet to discuss "Your career is impacting your life..." at the Ark Group Women Legal Conference
- Melissa Klimkiewicz to discuss "RESPA-compliant marketing" at NEXT
- Daniel P. Stipano to provide "Update on AML/SAR reporting and enforcement" at an Mortgage Bankers Association webinar
- Daniel P. Stipano to discuss "Dynamic customer due diligence and beneficial ownership from KYC to ongoing CDD and the new rule implementation" at the Puerto Rican Symposium of Anti-Money Laundering
- Jon David D. Langlois to discuss "Successors in interest updates" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference