WASHINGTON–NAFCU has told the Government National Mortgage Association (Ginnie Mae) it “cannot agree” with a proposal that would “arbitrarily” impose a blanket risk-based capital proposal on credit unions, while additionally raising other objections, as well.
NAFCU offered its view in response to a Request for Input (RFI) Ginnie Mae had published on potential changes to the financial requirements that must be met to obtain or maintain Single Family issuer approval.
NAFCU said it generally supports the proposals in the RFI as it relates to the added net worth and liquidity requirements for all issuers, because credit unions typically have higher amounts of net worth and liquidity.
“The risk-based capital (RBC) requirement, as it relates to non- banks or other financial institutions, is appropriate to mitigate risks posed by these underregulated entities and maintain the stability of the housing finance system,” NAFCU wrote. “But NAFCU urges Ginnie Mae to provide credit unions parity with banks and exclude all credit unions from the additional capital requirements imposed on non-depository institutions proposed in this RFI. Much like banks, credit unions should only be subject to the capital requirements set by their prudential regulator, (NCUA).”
CUNA noted that according to Ginnie Mae’s Mortgage-Backed Security (MBS) guide, MBS issuer applicants must meet certain capital requirements.
NCUA Should Set Standards
“Credit unions are specifically excluded from the category of banks and included in the category of ‘other financial institutions’ in the guide,” CUNA told Ginnie Mae. “The RFI excludes banks, bank holding companies, thrifts and savings, and loan companies from the requirements of the proposed change, like the MBS guide in its categorization of banks and ‘other financial institutions.’ This would effectively establish Ginnie Mae capital requirements for credit unions in addition to the NCUA’s existing capital framework and new RBC rule. The NCUA regulates credit unions just as the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and Federal Reserve System regulate banks; therefore, the NCUA should be the only one setting standards for credit unions.”
CUNA said other non-bank entities, such as mortgage companies, pose a systemic risk to the housing market because they are not regulated by a specific federal agency.
“In its 2020 Annual Report, the FSOC encouraged “relevant state and federal regulators to take additional steps to coordinate, collect and share data and information, identify and address potential risks, and strengthen the oversight of non-bank companies involved in the origination and servicing of residential mortgages,” NAFCU wrote. “It is critical to the safety and soundness of the entire housing finance ecosystem that non-bank servicers, which comprise the most rapidly growing segment of the mortgage market, are held to stringent capital and liquidity requirements. Accordingly, NAFCU generally supports the proposed capital standards in this RFI as applied to non-bank mortgage companies that are Ginnie issuers.”
Not ‘Reasonable’
Noting that on the other hand federally-insured credit unions (FICUs) are required to follow all the regulations of the NCUA regardless of the products and services they offer; they are also subject to yearly examinations that rate the important aspects of the credit union to ensure its safety and soundness.
“The proposed revisions do not represent reasonable and appropriate controls on counterparty risk within the Ginnie Mae program as they relate to credit unions,” NAFCU continued. “Credit unions’ net worth and capital are already regulated by the NCUA therefore Ginnie Mae should allow the NCUA to be the sole regulator of credit unions. The NCUA serves as the prudential regulator for the credit union industry and has an established track record of protecting the safety and soundness of the credit union system. Beginning in 2022, credit unions will be subject to the NCUA’s RBC rule, which is comparable to the risk-based capital regulation applicable to banks.”
‘Cannot Agree With Premise’
Pointing to NCUA’s risk-based capital rules and other factors unique to credit unions, NAFCU told Ginnie Mae, “Accordingly, NAFCU cannot agree with the premise of the RFI, which arbitrarily imposes a blanket RBC requirement on all non-bank issuers and ignores the important similarities between bank and credit union capital requirements as well as the critical need to tailor certain aspects of RBC requirements to reflect the unique structure of credit unions.
“To regard the NCUA’s necessary tailoring of credit union capital standards as completely divergent from bank regulation to the extent that credit unions should be treated as non-bank mortgage lenders (not subject to the prudential oversight of a functional bank regulator), would overstate the differences and harm credit unions. Consequently, credit unions should be exempt from the proposed changes in this RFI,” NAFCU continued.
‘Not Implementable’
NAFCU further stated Ginnie Mae’s proposed revisions are not implementable without undue or counterproductive disruptions to credit union issuers’ ability to conduct business.
“The changes proposed in the RFI are now stricter than the NCUA’s capital standards and will likely discourage credit unions from becoming Ginnie Mae issuers,” NAFCU added.
CUNA also earlier sent a letter to Ginnie Mae, details of which can be found here.