Some Ginnie Mae issuers and warehouse lenders have been gun-shy about entering financing arrangements for mortgage servicing rights because of concerns about the legal agreements Ginnie requires them to sign in the event that issuers become troubled.
But Ginnie has been making some changes to try to dispel those fears.
The government mortgage-backed securities guarantor recently finalized a clarification of the so-called acknowledgement agreements in response to feedback from issuers, warehouse lenders who provide MSR financing and their attorneys.
“They just felt like we had this incredible power, that we could really take servicing away from [warehouse lenders] without really giving them the opportunity to really just step in and take over the responsibilities for the issuer,” Ginnie Mae President Ted Tozer said. “We really tried to indicate to them that all we really care about is the fact that when an issuer gets into financial trouble, we need to make sure somebody’s going to be willing to make that next monthly bond payment.”
The clarification, which acknowledges Ginnie’s position and rights in MSR financings, was more about offering reassurances than making a major policy shift, Tozer said.
“A lot of it was misunderstandings,” he said. “Our intent was not as clear as it could have been in the document.”
The revised 22-page agreement tries to make it clear that “our deal is not about taking over the servicing [or] trying to do anything to disrupt the market,” Tozer said. “Our whole issue is, at the end of the day, we need to know what their plans are.”
It would be “fine” if warehouse lenders plan to keep the servicing and try to sell it, Tozer said. “We just need to know, in the interim, if they sell it, who is going to be making those payments to the bondholders.”
The new version of the agreement applies to new financings and can be retroactively applied if requested, Tozer said.
“We’re more than willing to look at their old agreement and replace it with this one if they want to do that,” he said.
Ginnie’s preliminary impression was that the mortgage industry representatives it worked with were “pleased with a few ways in which we’ve been able to make the acknowledgement agreement clearer and eliminate liability that was duplicative or unnecessary,” senior adviser Kathleen Gibbons said.
“They understand where we’re going, understand that we were trying to make the agreement as user-friendly as possible within the constraints of our charter and our systems and operational considerations,” she said.
The Mortgage Bankers Association confirmed that it has discussed the topic with Ginnie Mae and is reviewing the new draft.
“We appreciate Ginnie Mae’s engagement, and we have been working with Ginnie for the better part of two years to secure improvements to the acknowledgement agreement in order to facilitate increased availability of financing for MSRs,” Pete Mills, senior vice president of residential policy and member engagement, wrote in an email.
While there have been other revisions of acknowledgement agreements, this one has followed a significant period of review.
Ginnie has hoped that increased interest in using its MSRs to secure financings could help address recent liquidity concerns in the market for its servicing. Servicing traders also have hoped that the recent uptick in rates could improve MSRs’ attractiveness.
Meanwhile, Ginnie will be working under a new presidential administration next year, but Tozer said he does not anticipate that will affect his agency as much as others that are arms of the Department of Housing and Urban Development.
“We’re looked at as being kind of apolitical. Our job is more of a public utility just to move the loans through the process to get funded in the capital markets,” Tozer said. “We could be impacted depending on what they do with FHA and VA, which are more policy arms, but as far as our acknowledgement agreements and how we deal with our issuers, I just can’t see any of that really changing.”
The Federal Housing Administration and U.S. Department of Veterans Affairs insure the bulk of the credit risk on their loans, while Ginnie Mae ensures that the lenders and servicers that are its issuers pass those costs on to securitization investors.