Credit unions get some love from Ginnie Mae

Ginnie Mae will defer to credit union regulator instead of imposing additional capital requirements

Ginnie Mae, which guarantees loans to veterans and Federal Housing Administration borrowers, is changing its attitude toward credit unions.

In a change to its capital requirements, which set minimum standards for its issuers, Ginnie Mae will treat credit unions more like banks. Representatives for credit unions have sought the change since July 2021, when Ginnie Mae announced new proposed capital requirements.

State housing finance agencies, too, will be entirely exempt from the capital requirements. In an agency memo, Ginnie Mae said their “state sponsorship… enhances their counterparty standing.”

The change in approach exempts those two groups from capital requirements Ginnie Mae floated in 2021, drawing sharp criticism from industry stakeholders. Ginnie Mae suggested a 10% minimum risk-based capital ratio for all Ginnie Mae sellers and servicers, except banks. The ratio included a 250% risk weight for mortgage servicing rights, which industry stakeholders warned would “instantly devalue the entire existing global balance sheet.”

The changes to how Ginnie Mae will treat credit unions and state housing finance agencies will take effect at the end of this year. The agency’s 2021 proposed changes to capital requirements do not have an implementation date. Ginnie Mae did not respond to a request to comment.

Ginnie Mae President Alanna McCargo, in a prepared statement, said that the changes to the capital requirements “harmonize [Ginnie Mae] program requirements with standards enforced by other federal entities, and they better reflect the unique financial status of state housing agencies.”

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“This is important because credit unions and state housing finance agencies play critical roles in supporting community-based lending, particularly in underserved areas.”

The risk-based capital requirements would have also applied to Ginnie Mae-issuer credit unions because of a “bit of an accident,” said Elizabeth Sullivan, senior director of advocacy and counsel at the Credit Union National Association, a trade group representing that sector.

“It was not the focus or thrust of the request for input, but whatever [Ginnie Mae] decided to do for nonbanks was going to apply to credit unions,” Sullivan said.

CUNA opposed the proposed capital requirements not only because of the impact on credit unions who are Ginnie Mae issuers. After all, out of the nearly 5,000 federally insured credit unions, only a handful — “double digits,” according to Sullivan — originate Ginnie-backed loans. 

The objection was that Ginnie Mae had lumped credit unions in with nonbanks, and imposed additional requirements on credit unions beyond that of their regulator.

Credit unions are regulated at the federal level by the National Credit Union Association. They must serve only people within a specified membership — low-income, minority employees of a petroleum company in Hawaii, for example. They have to have a physical presence within geographical boundaries of that membership.

Sullivan said that there is “incredible potential” for credit unions to be more active issuers of Ginnie Mae-guaranteed mortgages. CUNA met with McCargo last year to discuss the proposed capital requirements, and met again with agency officials earlier this year.

“I think [Ginnie Mae] is genuinely trying to build bridges with the credit union movement,” said Sullivan.

Ginnie Mae guarantees mortgages backed by the FHA, which caters to first-time homebuyers, minority borrowers, and those who do not fit inside the credit box of the government-sponsored enterprises.

Credit unions, Sullivan said, are “well-positioned” to originate mortgages to those borrower profiles. According to CUNA, the average size of a credit union purchase mortgage in 2021 was $180,534, less than half the national average mortgage of $453,000.

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