WASHINGTON–CUNA has told the Government National Mortgage Association (Ginnie Mae”) it’s time to reassess its exclusion of credit unions from the definitions of “depository institutions,” saying CUs are “dismayed” at the imposition of a separate risk-based capital calculation imposed on the industry.
The trade group said the treatment of CUs has no statutory basis and Ginnie Mae has not publicly offered any policy explanation for this treatment. CUNA sent its letter in response to Ginnie Mae’s Request for Input: Eligibility Requirements for Single Family MBS Issuers.
Ginnie Mae issuers are the last backstop if borrower payments, equity, and insurance fail to provide payment to investors of GNMA mortgage-backed securities (MBS).
“In the RFI, Ginnie Mae explains its intentions to establish requirements that address each issuer’s mortgage banking activity and financial profile, introduce risk-based capital requirements, align Ginnie Mae with other government bodies, and make requirements easy to calculate and integrate into an issuer’s capital planning,” CUNA noted in its letter. “The RFI goes on to propose net worth and liquidity requirements for all issuers and risk-based capital ratio requirements solely for nonbanks.”
‘Simply Inappropriate’
CUNA said that in light of Ginnie Mae’s focus on aligning its eligibility requirements for issuers with the actual risks and activities taken on by its mortgage lenders, “credit unions should be treated as the insured depository institutions they are.”
“Requirements for the eligibility of credit unions to become Ginnie Mae issuers should be determined on the basis of their unique structure, activities, and risks, not those of nonbank mortgage lenders,” CUNA said. “Grouping credit unions with nonbank mortgage lenders directly contravenes Ginnie Mae’s stated principles in the RFI and is simply inappropriate if its ultimate goal is to align its requirements with the actual counterparty risk issuers pose to Ginnie Mae and American taxpayers.”
Credit unions, said CUNA, exist only to serve their members, and the relationship between credit unions and their members is fundamentally stronger than the relationship other financial services companies have with their customers. Moreover, said CUNA, in 2020, credit unions originated about 8% of the nation’s mortgages.
“Ginnie Mae has stated that nonbank underwriting is more relaxed than bank underwriting,” CUNA stated. “Certainly, this is true about nonbanks, however, credit union underwriting is more conservative than bank underwriting. According to data for the first quarter of 2021, FDIC banks report a 0.50% delinquency rate for real estate loans between 30-89 days past due and a 1.61% rate for real estate loans more than 90 days past due. During the same period, the total delinquency rate for credit union real estate loans is 0.32%. Overall, credit union asset quality is high, with a total delinquency rate of 5.4%.”
‘Not Comparable’
The result, said CUNA, is CU mortgage loans have long shown to be high in quality and low in risk.
“By grouping credit unions with nonbanks, Ginnie Mae may be underestimating the actual risks associated with nonbank underwritten loans,” CUNA stated. “Mortgage loans underwritten by credit unions are simply not comparable in terms of risk with those underwritten by nonbanks, which, again, begs the question of why Ginnie Mae would group credit unions with nonbanks when establishing risk-based issuer requirements.”
CUNA told Ginnie Mae credit unions are better capitalized than other lenders and have access to additional liquidity. In addition, CUs represent less concentration risk than other lenders, as well, CUNA said, providing the chart below.
| Credit Union Assets29 | |
| Cash and Equivalents | 15.3% |
| Investments | 20.3% |
| Loans secured by 1-4 family residential properties | 26.2% |
| All other real estate loans | 0.1% |
| Credit cards | 3.0% |
| Auto loans | 19.5% |
| Private Student Loans | 0.3% |
| Commercial Loans | 5.0% |
| Personal and Other Loans | 5.6% |
| Other Assets | 4.6% |
‘Dismayed’ at Treatment
“Credit unions that issue for Ginnie Mae are dismayed at the imposition of a separate risk-based capital calculation solely for the purpose of issuing for Ginnie Mae,” CUNA wrote. “The creation of a separate GNMA-created capital framework places an unnecessary burden on credit unions which already have a formal regulatory requirement from NCUA. Further, as credit unions are already examined with regard to their capital needs and the risks related to loan buybacks, it is a burden that is simply not necessary.
“Further, an additional capital framework for credit unions could create internal competition for capital that might result in the selling of loan servicing rights,” the letter continued. “Credit union members strongly appreciate that credit unions retain mortgage servicing rights. Credit unions find that servicing retention is a primary mechanism for maintaining a strong relationship with members and ensuring their financial health. Credit unions are extremely reticent to have that threatened by the significant weights placed on these activities under this framework.”
One Quarter Would Be Ineligible
CUNA said its analysis shows an estimated 24% of mortgage-issuing credit unions would not be eligible to issue for Ginnie Mae under the risk-based capital ratio described in the RFI.
“CUNA urges Ginnie Mae to establish separate requirements for credit unions,” the trade group stated. “The requirements should simply defer to NCUA’s capital requirements by requiring that all credit union issuers for Ginnie Mae be adequately capitalized as defined by NCUA regulations at a minimum.”