Ginnie has the PTAP program, but the problem is that for the lender to use it, they had to claim that they were actually in default, or illiquid as an institution, and stating that means you’re basically putting yourself out of business. Warehouse lenders would cut you off.
I think where Ted Tozer, former Ginnie Mae president, is headed with his recent proposal is 100% on point. Between Ginnie and the Federal Home Loan Bank System, I think we need to look at ways to create more liquidity vehicles that are backed by the federal government that can provide short-term liquidity to banks and nonbanks, although nonbanks would likely be the biggest users.
You can’t deny the fact that banks are leaving and have significantly contracted their participation in the mortgage market, particularly in the Ginnie Mae programs, and so, it left it all to the nonbanks that do between 80% to 90% of all the business that is put into Ginnie Mae securities. Because Ginnie securities operate on a scheduled requirement, meaning even if the borrower is in default, you still have to pay the investors until you collapse the pool of loans, which puts a huge liquidity challenge on nonbanks in the event of a credit event. So having a liquidity provision makes sense.
Can [President of the Government National Mortgage Association Alanna McCargo] do it? It could potentially impact the liquidity of Ginnie Mae if there are a lot of advances being made. She would have to consider what those costs would be. I’m sure they’re doing the evaluation, or maybe already have for various economic cycles. Then if there was a shortfall, what do you do about that?
Ultimately, this would have to go through approval. Ginnie operates under a different level of approval requirement, but I’m not sure what happens with their authorities here and their ability to provide sort of unlimited liquidity when needed. So these are all things that make this all complicated. I’m guessing some portions [of this plan] would run into a challenge.
