Trades Ask Ginnie Mae to Defer to NCUA on Capital Requirements

Trade organizations on Monday asked Ginnie Mae to treat credit unions on par with banks, instead of lumping them in with mortgage brokers and other non-bank lenders.

The letters from CUNA and NAFCU were in response to a letter from Ginnie Mae seeking comment as it tries to strengthen capital requirements for non-bank lenders to avoid the kind of losses suffered after the financial meltdown of 2008 caused largely by securities made up of bundles of shoddily underwritten mortgages – mortgages largely from banks.

Ginnie Mae buys mortgages from banks, credit unions and non-bank issuers that meet its qualifications. It bundles and sells the loans to private investors as mortgage-backed securities guaranteed by the federal government.

On July 12, Ginnie Mae proposed a capitalization rule that the trade groups argued is unduly harsh and would drive many credit union lenders out of the market.

Moreover, CUNA’s nine-page letter argued that Ginnie Mae is working from an outdated playbook of regulations devised during a time when credit unions were inconsequential in the mortgage market.

Elizabeth M. Young LaBerge, CUNA’s senior director of advocacy and counsel, wrote that credit unions originated only 1.9% of mortgages in 2007 when the housing bubble burst, triggering failures among mortgage-backed securities. However, credit unions had the strength to become larger players in the market, originating 8% of mortgages in 2020.

“While banks may have retreated from the mortgage market since the 2008 financial crisis, credit unions have not,” LaBerge wrote. “A fast-growing number of this nation’s millions of credit union members rely upon their credit union to help them purchase, renovate or refinance their home.”

LaBerge wrote that credit unions are considered “depository institutions” in other circumstances, but not in Ginnie Mae’s regulatory definitions.

“This treatment has no statutory basis and Ginnie Mae has not publicly offered any policy explanation for this treatment,” she wrote. “Credit unions should be treated as the insured depository institutions they are.”

Instead of applying a new set of capital requirements Ginnie Mae is considering for non-banks, it should place credit unions on par with banks. Just as Ginnie Mae defers to the FDIC and other federal regulators for the capital requirements and soundness of banks, it should defer to the NCUA for capital requirements for credit unions.

Aminah M. Moore, NAFCU’s regulatory affairs counsel, wrote that Ginnie Mae’s proposed capital requirements would be stricter than the NCUA’s standards and would likely discourage credit unions from becoming Ginnie Mae issuers, and by extension hurt low-income, moderate-income (LMI) and minority borrowers.

“This will have a chilling effect on the market for FHA loans, preventing some LMI borrowers from becoming homeowners and further expanding the racial homeownership gap that prevents many Black and brown consumers from building and maintaining wealth,” Moore wrote. “If the changes proposed in this RFI serve as a barrier to credit unions becoming Ginnie Mae issuers, it will hurt the members and the communities at large that the FHA was created to help and protect.”