Ginnie Mae announced Thursday that it will allow relief from its risk-based capital ratio (RBCR) requirements for any issuers of mortgage-backed securities (MBS) that successfully hedge the value of their mortgage-backed securities (MSRs). Another housing advocacy group said the move would create flexibility for private mortgage banks (IMBs).
The new memorandum emphasizes that from Dec. 31, 2024, “certain issuers and applicants will also be required to maintain a Risk Based Capital Ratio (RBCR) of 6% which is a function of assets weighted to Adjusted Net Worth.”
Because MSRs are “often a significant part of an issuer’s assets and their values fluctuate due to changes in interest rates,” issuers can reduce their interest rate exposure by including MSRs in their books, which helps “reduce volatility in MSR values,” according to the memo.
“Therefore, Ginnie Mae will provide assistance for Risk Based Capital needs to producers who demonstrate successful hedging over time,” the memo said.
“As we have previously stated, Ginnie Mae will continue to look for ways to adjust our RBCR, where industry practice indicates a reduction in perceived risk,” said Sam Valverde, the company’s acting president, in a statement. “With RBCR coming into effect at the end of the year, we are pleased to provide this relief with proven protection techniques.”
Ginnie Mae will oversee the standards of what constitutes a “successful” MSR through “meaningful information submitted quarterly on the issuer’s Mortgage Banking Financial Reporting Form (MBFRF).” It defines “hedge effectiveness” as “the portion of derivative gains/losses used to hedge MSRs relative to changes in MSR values due to market changes and models, as defined in the MBFRF.”
To be eligible for risk-based capital assistance, issuers must have hedged at least one of the last four quarters, and four of the last 12 quarters, according to the policy announcement.
I Community Home Lenders of America (CHLA) welcomed the new development in a statement issued on Thursday.
“CHLA commends Ginnie Mae for allowing eligible issuers to qualify for the RBCR and creating more flexibility for IMBs in addressing capital-based capital requirements,” said CHLA executive director Scott Olson. “This program will not only expand access to Ginnie Mae for the unbanked, but will also increase access to credit for first-time, minority, and other underserved borrowers.”
The law lowered the minimum risk-based capital ratio from 10% to 6%. But it also imposed a 250% risk weight on MSR assets and a dollar-for-dollar deduction on excess MSRs. The guideline was to come into effect at the end of 2023.
But Ginnie Mae in 2022 announced that the implementation date would be finalized by the end of 2024, much to the delight of industry voices who had expressed concern about the new requirements.
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