There has been considerable focus on the vulnerabilities of nonbank mortgage servicers to the liquidity risks inherent in Ginnie Mae servicing. This is a critical issue. Banks, which have access to other sources of liquidity, including the Federal Reserve discount window and Federal Home Loan Bank advances, compose only a small part of Ginnie Mae outstandings and an even smaller part of new issuance. By contrast, independent mortgage banking company (IMB) issuers, which cannot access either of these sources of liquidity, compose 95 percent of current Ginnie Mae originations and 86 percent of outstandings. The Financial Stability Oversight Council highlighted these risks in its 2024 report and urged congressional action. It is clear that congressional action is not forthcoming. In this report, we look at several potential administrative solutions.

Key Takeaways

This report looks at five potential administrative solutions to address this industry’s liquidity risks and the advantages and disadvantages of each. We do not consider items that require congressional legislation. We look at how Ginnie Mae is structured and why there are no easy solutions. Although liquidity risk is an important issue, each proposed solution has difficulties and trade-offs. The solutions we examine fall into three categories.

• Changes that allow IMBs to monetize their advances: We evaluate proposals to change the Ginnie Mae acknowledgement agreement to allow for bifurcation of the advances and a proposal to allow the Federal Housing Administration (FHA) to advance taxes and insurance.
• Ginnie Mae uses its authority to issue government-guaranteed securities: We examine two proposals—both within Ginnie Mae’s authority—to issue government-guaranteed securities collateralized by FHA-, VA-, and USDA-insured mortgages to provide IMBs tools to manage liquidity. These proposals include establishing a commercial paper facility or an early buyout (EBO) facility.

• Expanding PTAP: Most of the tools we have mentioned so far require the private sector to play a role—lending against mortgage servicing rights advances that would result from bifurcating the Ginnie Mae acknowledgment agreement and buying the government-guaranteed securities that would be sold from either a commercial paper facility or an EBO facility. These liquidity measures are meant to be generally available. But there could be times when the private sector is not available to provide liquidity on terms that are financially reasonable to the IMBs.

  At present, there is no tool designed to provide liquidity in such a scenario. The only program that has been implemented that supports servicing liquidity when the private sector would not be able to do so is Ginnie Mae’s pandemic-era Pass-Through Assistance Program (PTAP). We review the pandemic-era PTAP structure and identify potential improvements.

Our Conclusion

PTAP can play a role during crisis periods. Attempting to remake PTAP so it can provide liquidity to nonbanks on a more regular basis would be challenging and would raise difficult policy implications. This makes implementing one or more the solutions above—changes to the acknowledgement agreement, advancing taxes and insurance, or the establishment of a government-guaranteed commercial paper facility or EBO facility—critical.