Skip to main content

Moody's: Shutdown Raises Lender Exposure to Risk

Phil Hall
Jan 10, 2019
Ginnie Mae announced its 2019 Ginnie Mae Summit that was planned for Feb. 4-5 in Washington, D.C., has been postponed due to the partial federal government shutdown

A new report issued by Moody’s Investor Service is warning that the partial federal shutdown will increase the level of mortgage-delivery risk for lenders, particularly non-bank mortgage companies.
 
The shutdown began on Dec. 22 and has left approximately 800,000 without paychecks. The shutdown has also limited the activities of government agencies involved in the mortgage origination process. Moody’s warned that this situation will permeate the mortgage industry, with less than positive results.
 
“Disruptions may lead to modest strains on nonbank lenders’ balance sheets and a greater risk of making bad loans for all lenders,” Moody’s stated. “The government’s closure is credit neutral for securitizations, with resulting delinquencies likely to be temporary, and credit criteria and due diligence preventing new transactions from including loans with unverified information. Risks will rise if the shutdown persists and the start of the spring home buying season approaches.”
 
Moody’s added that all residential mortgage lenders, including depository institutions, “face an increased risk of missing red flags on borrower quality, lapses that could lead to loans with higher risk of losses.” The secondary market could also be impacted in this environment.
 
“The shutdown is also negative for nonbank lenders, which currently make up approximately 60 percent of mortgage originations, because they will be unable to sell a small percentage of their loans (such as loans to federal workers because of the inability to verify their employment) during the shutdown to certain investors such as Fannie Mae and Freddie Mac,” Moody’s stated. “This will expose these originators to modest balance sheet strain. The shutdown is also halting government-provided reverse-mortgage insurance for home equity conversion mortgages (HECMs), making it less likely that lenders will originate these loans during the shutdown.”
 
Moody’s also observed that lenders will need to develop their own methods to validate Social Security Numbers, rather than rely on the federal government, and request tax transcripts directly from borrowers rather than wait for the Internal Revenue Service to resume operations. Furthermore, the National Flood Insurance Program (NFIP) and other government offerings are at risk of being shut down if the current situation continues indefinitely.

 
Published
Jan 10, 2019
Biden Nominates McCargo To Lead Ginnie Mae

Currently Serves As Senior Advisor For Housing Finance At HUD

Regulation and Compliance
Sep 14, 2021
OCC Plans To Rescind 2020 CRA Rule

The OCC formally issued a proposal to rescind a controversial rule within the Community Reinvestment Act (CRA) that was published in June 2020.

Regulation and Compliance
Sep 10, 2021
CSBS Changes Servicer Liquidity Policy

CSBS And MBA Encourage States To Adopt Consistently

Regulation and Compliance
Sep 08, 2021
Flexibilities Move Forward

Pandemic Priorities Continue To Drive Industry Modernization

Regulation and Compliance
Sep 08, 2021
FHFA And The Enterprises Coordinate Action On Equitable Housing

Today the FHFA is announcing that Fannie Mae and Freddie Mac (the Enterprises) will submit Equitable Housing Finance Plans to the FHFA by the end of 2021.

Regulation and Compliance
Sep 08, 2021
Realtors Encouraged By Biden Plan to Expand Housing Supply

Administration Said Wednesday It Plans To Add 100,000 Affordable Homes In 3 Years

Regulation and Compliance
Sep 03, 2021