Ginnie Mae’s handling of troubled issuers draws attention from HUD inspectors

The Department of Housing and Urban Development’s inspector general released a report raising concerns about a range of issues in 2024, including how economic headwinds will impact Ginnie Mae.

The report states Inflation soars Rapid increases in interest rates negatively impact non-bank institutions and increase risks for government guarantors.

HUD OIG report questions how Ginnie Mae manages issuers in financial distress and its mechanism for reallocating distressed portfolios to another issuer, without having to absorb the service mix itselfThe regulator called the issue “serious” and noted A previously published report found gaps Ginnie’s guidance and processes for distressed issuers have not yet been fully addressed.

According to the report, one of the main potential risks is that issuers of Ginnie Mae service reverse mortgages, which are more susceptible to the negative impact of rising interest rates than forward mortgages because they reduce the amount of money borrowers can borrow through Funding obtained with a reverse mortgage. HECM Loans. HUD OIG noted in its report that Ginnie must seize the following portfolios: reverse mortgage financing Earlier this year, “even with contracted sub-service providers, this is personnel intensive.”

“Challenges faced in times of rising interest rates [Home Equity Conversion Mortgage securities] the report stated. “This situation is particularly concerning as the four largest issuers own approximately 86% of the remaining HMBS market. A hypothetical default on another HMBS portfolio could seriously challenge Ginnie Mae’s capabilities.”

According to the HUD OIG report, the government guarantor’s capacity (in terms of employees) is weak and there is continued overreliance on government contractors, even though Genie operates “secondary market programs on a scale similar to those of Fannie Mae and Freddie Mac” Similar to “enterprise”.

Previously, Genie said it had completed an evaluation of the best mix of contractors and in-house staff and would begin moving employees from contractors to in-house sometime this year.

Ginnie Mae responded to HUD OIG’s concerns about distressed issuer portfolio management, writing that it “has robust issuer monitoring protocols in place, but the organization needs greater flexibility to be agile enough to respond to significant, rapid developments.” market events that have put pressure on Ginnie Mae’s resources,” the regulator’s report said.

“If a severe firefighting situation occurs in the future, Ginnie Mae believes it will be best prepared if it has the flexibility to add resources and staff support to match the size of its portfolio that Ginnie Mae may require, similar to the model developed by used by the Federal Deposit Insurance Corporation,” the Office of Inspector General wrote.

HUD OIG also noted counterparty risk issues related to the protection of the Federal Housing Administration Mutual Mortgage Insurance Fund. It points to the importance of better oversight of service providers offering loss mitigation options.Earlier this year, another HUD OIG report found that servicers, like Mr. Cooper, struggled provide appropriate reservations Options for borrowers who are delinquent on their Federal Housing Administration (FHA)-insured loans COVID-19 tolerance The report also said the FHA has a lengthy foreclosure and transfer process.

The inspector general also cited the department’s continued lag in maintaining its information technology systems.

While some progress has been made, such as reorganizing critical IT and cybersecurity positions, the report adds: “HUD must continue its efforts to strengthen its IT, cybersecurity and data management systems and continue to adapt and implement secure and modern IT environment. ” .

HUD faces several long-term challenges in modernizing its IT systems, such as obsolete mission-critical applications, “which creates multiple sources of risk, potential vulnerabilities, and a lack of accurate and complete hardware inventory when it comes to protecting personally identifiable information.” “Limits the capabilities of the HUD. Ability to understand, prioritize and resolve the most critical IT risks. “

HUD did not immediately respond to a request for comment.

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