Ginnie Mae to allow securitized single loans, boosting small-lender competition
Wednesday, April 14, 2010
Ginnie Mae plans to allow lenders to securitize single loans starting in July, a policy change that would help small lenders be more competitive when doing business with the agency and with the Federal Housing Administration.
The FHA does not make loans but insures certain lenders against losses should borrowers default. The agency has played a key role in propping up the housing sector since the mortgage market meltdown.
Mortgage lenders working with the FHA often bundle the loans they make into securities and sell them to investors. Ginnie Mae guarantees those securities so that investors continue to get their principal and interest if loans go bad or lenders are unable to make payments to investors.
However, each lender must have a certain number of loans to receive Ginnie Mae's guarantee. For that reason, Ginnie Mae-backed securities are dominated by the largest lenders, said Guy Cecala, publisher of Inside Mortgage Finance. Wells Fargo and Bank of America accounted for nearly 55 percent of all securities issued by the agency last year, according to the publication.
For small lenders, it has been more efficient to sell loans to the larger lenders to be included in a security rather than hold the loans on their own balance sheets for an extended period and fund them, which could strain their limited capital.
But by selling their loans to larger aggregators, the smaller lenders usually could not service those mortgages, meaning collect the monthly payments and earn fees for doing that. Also, they could not get the best possible return when the loans were sold to investors, Cecala said.
To level the playing field, Ginnie Mae plans to start allowing lenders to securitize single loans and will issue loans on a daily rather than weekly basis, Housing Secretary Shaun Donovan said in prepared remarks at a policy conference hosted by the Mortgage Bankers Association. "This will help smaller lenders access Ginnie Mae and FHA directly."
FHA Commissioner David H. Stevens said in an interview that the single loans will be mixed into a pool of loans from multiple lenders. The policy changes will give smaller institutions "more flexibility and a competitive role in the lending process," Stevens said.
Ginnie Mae requires its lenders to have a net worth of at least $1 million. The announcement comes when the FHA will soon be making similar demands on the lenders it works with.