Ginnie Mae’s misconceptions about credit unions and mortgages

Ginnie Mae’s misconceptions about credit unions and mortgages

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Ginnie Mae’s misconceptions about credit unions and mortgages

In July, Ginnie Mae issued a request for input proposing to establish additional, risk-based eligibility requirements for issuers of securities backed by single-family mortgages. The RFI perpetuates Ginnie Mae’s strange treatment of credit unions as a nonbank mortgage lender even though credit unions are insured depository institutions regularly examined by a prudential regulator for safety and soundness.

If this policy is finalized without alteration, an estimated 24% of credit unions will be excluded as qualified issuers. This is a terrible result for Ginnie Mae, credit unions and most importantly American homebuyers.

Ginnie indicates that the purpose of the RFI is to address the risks posed by the “unique business profile of independent mortgage banks,” but it is difficult to reconcile that stated purpose with its treatment of credit unions. For example, Ginnie Mae is concerned that underwriting by nonbanks is less conservative than banks, and therefore could pose more risk to Ginnie. However, credit union mortgage loans have long shown to be high in quality and low in risk compared to both banks and nonbank mortgage lenders. Credit unions and nonbank mortgage lenders simply don’t have comparable risk profiles.

Additionally, nonbank mortgage lenders’ assets are much less diversified. While the former are prone to concentration in mortgage servicing rights, credit union assets often include auto loans, commercial loans, credit card loans and more. Given the supervisory expectations by the prudential regulator for concentration risk management at credit unions, it is simply not reasonable to say these entities have similar risk profiles.

Ginnie Mae has also asserted that: “Unlike their bank counterparts, nonbanks are less stringently regulated and are subject to lower capital and liquidity requirements.” This is clearly not accurate regarding credit unions. Credit unions are subject to extensive capital, liquidity and risk management standards, regular reporting requirements, and frequent examination by the National Credit Union Administration and – depending on charter and asset size – state examiners and the Consumer Financial Protection Bureau as well.

Whereas true nonbank mortgage lenders have limited access to funding sources, which are likely to contract during a liquidity crisis, credit unions have broader and more stable access to liquidity. Currently, credit unions have ample liquidity in the form of member deposits: The credit union system’s net worth is $ 195.3 billion. Credit unions also hold cash and equivalent assets with maturities of three months or less totaling $ 297.9 billion.

Additionally, credit unions have the option to join the Central Liquidity Facility, the Federal Reserve System and Federal Home Loan banks to access further liquidity when needed. Access to liquidity for credit unions and nonbank mortgage lenders are simply not comparable, and therefore neither is their liquidity risk.

NCUA has already done the work of establishing appropriate capital requirements for credit unions based on their risk to the National Credit Union Share Insurance Fund. This creates a ready-made classification system to hold credit unions accountable to.

While the differences between credit unions and nonbank mortgage lenders are clear, Ginnie Mae has met these discrepancies with a shrug. This RFI only adds further insult to injury. It is past time for Ginnie to recognize the significantly different risks posed by credit unions and nonbank mortgage lenders and start treating them accordingly.

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