In the last decade, Ginnie Mae has seen what it calls a “significant transformation” in the type of players that participate in the issuance of its mortgage-backed securities, with the bulk of transactions now being handled by nonbank lenders.

The development has the agency considering ways it can better monitor the health of these participants in order to protect its $2 trillion MBS portfolio from counter-party risk.

To address the situation, Ginnie recently revealed plans to institute stress tests for major nonbank lenders that would assess their ability to perform in adverse conditions over a two-year period.

The agency’s proposed test includes the evaluation of the performance of an issuer’s balance sheet, income and cashflow under adverse conditions over the course of eight quarters.

It also projects a lender’s ability to comply with net worth, capitalization and liquidity requirements under such duress, and assesses its risk of insolvency.

Ginnie recently released a notice requesting feedback from the industry on its proposed methods, the effectiveness of the framework and the impact such testing might have, asking for comments by August 31.

According to Ginnie, a significant move away from bank issuers has convinced the agency that it is “prudent to assess how these institutions might perform in an adverse economic environment.”

Ginnie said nonbank MBS issuance rose from 12% in fiscal year 2010 to 77% in FY 2018. Similarly, ownership and management of Ginnie’s mortgage servicing rights have shifted into the hands of nonbanks, rising from 10% in FY 2010 to 62% in FY 2018.

"Ginnie Mae continues to evolve its counterparty risk management framework, which is essential to delivering our mission of facilitating homeownership in America while also protecting American taxpayers," said Ginnie Mae Acting President Maren Kasper. "The [request for information] enables the agency to incorporate the views of a wide variety of stakeholders as we continue to refine the model, implement policy and evaluate potential risks to the U.S. housing finance system."

Interested parties can email their feedback to the agency at gnma.rfi.submission@hud.gov.