The Community Home Lenders of America is urging federal officials to create an emergency liquidity facility before the next market disruption leaves nonbank mortgage servicers struggling to make payments on delinquent government-backed loans.
The proposal, dubbed G-TALF, would provide temporary, collateralized financing to otherwise solvent Ginnie Mae issuers facing a sharp increase in servicing advances or delinquent-loan buyouts.
For loan originators, the concern is what could happen without that backstop. If servicers cannot obtain enough financing during a delinquency surge, lenders could reduce their exposure to FHA, VA, and USDA loans, tighten pricing, or retreat from government lending when borrowers need it most.
CHLA has raised the idea with Ginnie Mae, but no government agency or lawmaker has publicly committed to developing it.
“We have periodically raised this with Ginnie Mae over the last few years,” CHLA Executive Director Scott Olson told NMP. “There does appear to be interest in doing something among different parties.”
Olson did not identify those parties or a formal path toward implementation.
The Cash Obligation Behind Ginnie Mae Loans
When borrowers with FHA, VA, or USDA loans miss payments, Ginnie Mae issuers must continue forwarding scheduled principal and interest to mortgage-backed securities investors. Servicers finance those payments until the borrower resumes paying, the loan is resolved, or a government insurance or guaranty claim is paid.
Issuers may also buy seriously delinquent loans out of Ginnie Mae pools, which requires additional financing.
The system protects investors, but it puts the immediate cash burden on issuers. That burden is concentrated among independent mortgage banks, which dominate Ginnie Mae issuance but lack the insured deposits, Federal Reserve access, and other government-supported liquidity available to banks.
NMP previously examined that vulnerability in “The Liquidity Squeeze In FHA Servicing,” which found that rising delinquencies could require nonbank servicers to devote increasing amounts of cash to advances and loan buyouts.
CHLA is not arguing that a crisis has arrived. Its position is that the government should establish the facility while markets are stable instead of trying to design one after delinquencies spike and private financing tightens.
How G-TALF Could Work
CHLA says a Federal Reserve facility modeled on the Term Asset-Backed Securities Loan Facility would be the most logical funding source. Other possibilities include Ginnie Mae or Treasury advances, congressional funding, or Federal Home Loan Bank advances made through banks that finance mortgage servicers.
Recoverable servicing advances and loans bought out of Ginnie Mae pools could serve as collateral.
The proposal also supports a Housing Policy Council plan that would allow banks to finance Ginnie Mae servicing advances separately from the underlying mortgage servicing rights. That distinction matters in a downturn: Delinquencies and required advances may rise just as MSR values and the borrowing capacity tied to them decline.
Making advances separately financeable could increase private liquidity during normal markets and provide the collateral structure for G-TALF during a broader disruption.
Moving Beyond Last-Resort Assistance
Ginnie Mae introduced a special version of its Pass-Through Assistance Program during the COVID-19 emergency. PTAP allowed issuers facing pandemic-related liquidity shortfalls to request assistance with required principal-and-interest payments.
But the program was positioned as a last resort. Ginnie Mae approved just $11.5 million for nine single-family issuers through Sept. 30, 2020, according to its 2020 annual report.
CHLA argues that the last-resort designation made PTAP too restrictive and discouraged financially viable issuers from using it. G-TALF would instead provide liquidity before an issuer deteriorated to the point that Ginnie Mae had to seize or transfer its servicing portfolio.
“The articulation here in the white paper was more to point out that this is not a bailout, not artificially propping up firms that can’t survive financially due to underlying problems with financial fundamentals,” Olson said.
The difficult part would be determining which issuers face a temporary cash shortage and which have deeper financial problems. Olson said Ginnie Mae should make that determination, while also preventing companies capable of managing the disruption privately from overusing the facility.
A Framework, Not A Finished Program
G-TALF remains a framework. CHLA has not proposed specific pricing, collateral haircuts, repayment periods, eligibility standards, or activation thresholds.
“This is something Ginnie, or the entity like the Fed that might fund it, should be designing,” Olson said.
Possible triggers outlined by CHLA include sharp increases in FHA, VA, or USDA delinquencies, regional disasters, government-mandated forbearance, or disruptions in Ginnie Mae issuance and aggregator pricing. It also remains unclear whether Ginnie Mae could establish the facility under existing authority.
The white paper builds on CHLA’s earlier argument that lowering bank capital requirements alone will not address the structural funding disadvantage facing independent mortgage banks. NMP reported in June that CHLA viewed liquidity as the more pressing concern.
The immediate proposal is a federal financing facility for servicers. The broader issue for originators is whether the government-loan channel would keep functioning through the next serious downturn.
