Ocwen warns of difficulty meeting new Ginnie Mae capital requirement

Ocwen Financial has issued a statement indicating that it foresees trouble meeting Ginnie Mae’s new risk-based capital requirement by the end of next year.

While they don’t anticipate problems with other aspects of the new minimum eligibility requirements recently announced by the government bond insurer in coordination with the Federal Housing Finance Agency, the RBC that is unique to Ginnie will be a sticking point, according to the nonbank.

“We are currently in compliance with the new FHFA and GNMA liquidity and capital standards and expect to be in compliance when they take effect in September 2023, with the exception of the GNMA risk-based capital ratio,” Ocwen said in its statement, noting that it is “having discussions with Ginnie” about the matter.

Ocwen’s concerns stem largely from the fact that owned mortgage servicing rights are assigned a particularly high risk weight of 250% in the new capital requirements. 

Mortgage trade groups were relieved that the required 6% capital ratio in the finalized requirements was lower than the 10% previously proposed, keeping the minimum at a level in line with previous non-risk-based requirements. But they remain worried about how Ginnie plans to apply the new risk weightings and ratio to nonbanks.

“The calculation of the numerator is different and that’s your [adjusted] net worth minus your excess MSR, it lowers your ratio,” Pete Mills, MBA senior vice president, residential policy, said in a recent interview with NMN. (Ginnie defines “excess” as the amount of servicing rights above a company’s net worth and divides that number by risk weighted assets.)

Although taken as a whole, the new counterparty FHFA and Ginnie standards also contained some positive changes related to mortgage company eligibility standards, the latter’s the risk weight for MSRs and related calculations present “problems,” Mills said.

Ocwen is looking into ways it might be able to meet the risk-based capital requirement, but indicated it will have to weigh the cost involved in doing so against the benefits.

“Alternatives we are evaluating include but are not limited to external investor solutions, structural solutions or exiting GNMA forward originations and owned servicing,” Ocwen said in a statement.

Ginnie-backed securitizations of loans insured by other government agencies constituted 4% of the company’s servicing portfolio as of June 30. Less than 10% of its year-to-date originations had Ginnie Mae exposures as of Aug. 31.

“We expect we will continue to subservice GNMA forward mortgages and originate, subservice and own GNMA reverse mortgages [or Home Equity Conversion Mortgages] as we do not believe these activities will be impacted by the new regulations,” Ocwen said in its statement.