Mortgage lender Home Point Financial, which does business as Homepoint, is poised to exit the Ginnie Mae mortgage-servicing rights market, according to its CEO and filings with the Securities and Exchange Commission.
Homepoint, in an SEC filing in early November, revealed that its third-quarter financials were boosted by $122 million proceeds on the sale of mortgage-servicing rights, or MSRs, for an $11 billion portfolio of single-family mortgages “serviced for the Government National Mortgage Association,” or Ginnie Mae.
In a separate SEC filing made in September, the lender revealed that the $11 billion portfolio represented about 41% percent of Homepoint’s “total Ginnie Mae mortgage-servicing portfolio as of June 30” — a percentage also confirmed by the lender’s chief financial officer, Mark Elbaum. The buyer for that $11 billion MSR portfolio, according to the September SEC filing, was Freedom Mortgage Corp.
Homepoint, the third largest nonbank wholesale lender nationally, per Fitch Ratings, posted a $73 million loss for the second quarter ended June 30. The $122 million earned on the third-quarter sale of the $11 billion Ginnie Mae MSR portfolio, however, helped to boost Homepoint and its parent, Michigan-based Home Point Capital Inc., into the black for the third quarter of this year, with the lender reporting a Q3 profit of $71 million.
“The [MSR] transaction further streamlined Home Point’s servicing operations, reduced overall portfolio delinquencies, and provided incremental liquidity which was used to reduce outstanding debt,” the company’s November SEC filing states.
Ginnie Mae backs only the securities issued against mortgages that are in turn guaranteed by the Federal Housing Administration, a go-to program for many first-time homebuyers; the Department of Veterans Affairs; the Department of Rural Housing Service; and HUD’s Office of Public and Indian Housing.
Homepoint spokesperson Brad Pettiford declined to comment on the lender’s plans for its remaining Ginnie Mae MSR holdings beyond what is in public filings.
As of the end of its second quarter on June 30, based on the revelations in the SEC filings, Homepoint would have had slightly more than $26 billion in Ginnie Mae MSRs on its balance sheet. After completing the $11 billion Ginnie Mae MSR sale during the third quarter ended September 30, that loan-volume total would have been reduced to about $15 billion — or roughly 59% of what had been a slightly more than $26 billion portfolio at June 30.
“Based on the strong execution of our third-quarter [$11 billion] Ginnie Mae MSR sale, we are in the market with an additional Ginnie Mae MSR portfolio,” Homepoint CFO Elbaum confirmed during the company’s November 4 earnings call. “We expect this sale to close in the fourth quarter, subject to customary closing conditions.”
The trade publication Inside Mortgage Finance reported recently that Homepoint is currently seeking to auction off another $15 billion worth of MSR assets — roughly equivalent to the lender’s estimated remaining Ginnie Mae MSR balance — and that Freedom Mortgage has won the bid. The publication did not reveal the identity of its sources for that information.
Homepoint’s Pettiford would not reveal any potential buyers or even the portfolio value of the MSRs that Elbaum confirms are currently for sale, adding that “the buyer for the pending MSR sale has not been disclosed publicly yet.” (Again, the buyer of the separate $11 billion MSR package sold in the third quarter was Freedom Mortgage, per Homepoint’s SEC filings.)
Homepoint President and CEO William Newman did confirm during the November earnings call, however, that the lender is looking to exit the Ginnie Mae MSR market. Homepoint, he added, will continue to originate loans that are supported by Ginnie Mae-backed securities — which include single-family mortgages guaranteed by the Federal Housing Administration (FHA), Veterans Affairs (VA) and U.S. Department of Agriculture (USDA).
The question on the future of Homepoint’s Ginnie Mae MSR portfolio was broached during the earnings call by Mihir Bhatia, a research analyst with Bank of America, who asked the following: “You have the idea here that you don’t want to be a Ginnie servicer for the most part, so the idea is to just sell the rest of your Ginnie servicing?”
“That’s right,” Homepoint CEO Newman replied. “We really looked at how to optimize our operation, and looking at the Ginnie segment of the portfolio, we determined that we were simply subscale and there are obviously several very large-scale servicers out there that frankly perceive greater value in that servicing than we could ascribe to it.”
Newman then added: “I do want to clarify and ensure everyone knows that we continue to originate in the … FHA, VA [and] USDA markets, and we will continue to do so. It’s an important part of what we do from an origination and a partner standpoint.”
The holders of Ginnie Mae mortgage servicing rights, primarily nonbanks today, are responsible for assuring timely payments are made to Ginnie Mae bondholders. And when loans go unpaid due to default, the lenders still must cover the payments to the bondholders — though over time they can recoup those costs. Still, it can create cash-flow stress for the lender.
That requirement, coupled with the proposed addition of a risk-based capital requirement for nonbank servicers of Ginnie Mae securities, has been enough to spark concern in the market, some industry observers note. Among those concerns is that nonbank lenders faced with any liquidity concerns will be inclined to sell off their Ginnie Mae MSR assets.
“Ginnie Mae loans tend to have, or tend to be more delinquent than conventional products,” said Azad Rafat, MSR senior director at Mortgage Capital Trading Inc. in San Diego. “On average, the rate of delinquency is about two times as much as the conventional product.”
This past July, Ginnie Mae issued a Request for Input (RFI) laying out a plans to bolster financial requirements for issuers and servicers of the securities it guarantees. The comment period was originally set to expire in early August but was later extended to October 8 of this year. Ginnie Mae has not yet published the final rules.
The three-part Ginnie Mae proposal calls for bolstering net worth and liquidity standards for nonbank issuers and holders of Ginnie MSRs, which the industry generally agrees are workable standards — with a few tweaks. The third part of the plan, however, would impose what many industry leaders and experts see as overly onerous “minimum risk-based capital” standards for nonbank lenders engaged with Ginnie Mae servicing rights.
“What some lenders are saying is, ‘I don’t even want to worry about it. So, I’m going to pare back my Ginnie Mae holdings,’” Tom Piercy, managing director of Denver-based Incenter Mortgage Advisors, said in a prior interview with HousingWire. “So, we now have this potential issue, [and their thinking is] let me sell now while I don’t have the pressure, right, versus all of a sudden.”
That uncertainty is likely to continue into the foreseeable future because Ginnie Mae is still reviewing the proposed new rules, with no firm deadline yet set on when a decision will be made.
“I can’t give you a date for when we will provide an update,” said Ginnie Mae spokesman Douglas Robinson. “Ginnie Mae continues to work on this important policy.”