A government mortgage agency says it needs more resources to
police the growing ranks of companies rushing to fill the void left
by big banks that have stepped away from the market for riskier
home loans.
Ginnie Mae is asking for more staff in part to vet the rising
number of nonbank lenders making loans insured by the Federal
Housing Administration, whose program makes it possible for
borrowers with weaker credit to get loans with down payments as low
as 3.5%.
The FHA's mission is to make homeownership more available for
first-time buyers and other less-wealthy borrowers. In exchange for
putting little cash down, borrowers pay insurance premiums, which
result in higher mortgage payments.
In the past year big banks, such as Wells Fargo & Co. and
Bank of America Corp., have pulled back sharply from the market
after a series of multimillion-dollar legal settlements for
mistakes made during the crisis. The U.S. Department of Justice has
said the banks defrauded the government by submitting loans for
insurance by the FHA that weren't eligible by misstating borrowers'
incomes or property values. The banks admitted fault in most cases,
but some now say they were treated unfairly.
The pullback has left an opening for nonbank lenders, such as
loanDepot LLC and Guild Mortgage Co., to grab market share. Ginnie
Mae, which backs mortgage securities that include FHA and other
federally insured loans, expects nonbank lenders to account for
about 60% of its business this year, up from about half last year
and less than a fifth in 2011.
While the nonbank lenders face oversight from state regulators
and some federal agencies, such as the Consumer Financial
Protection Bureau, they aren't subject to the same level of
scrutiny from other big regulators such as the Federal Deposit
Insurance Corp. and the Office of the Comptroller of the Currency,
said Ginnie Mae President Ted Tozer.
"There's just not all these other agencies looking at them that
we have with banks," said Mr. Tozer.
Wells Fargo, which is in the midst of a Justice Department
lawsuit related to FHA loans, posted a 74% drop in FHA loan volume
in 2014 over the previous year, according to trade publication
Inside Mortgage Finance. Bank of America, which last August agreed
to pay $800 million in FHA-related damages, cut its volume by
69%.
J.P. Morgan Chase & Co., which agreed to pay $614 million
last February to the FHA, made 74% less in FHA loans in 2014.
"We're just thoroughly confused about how we got treated [by the
FHA]," said J.P. Morgan CEO James Dimon on a conference call with
analysts last July. "We're going to be very, very cautious in that
line of business."
Higher mortgage costs and interest rates helped drive down the
overall volume of FHA loans by 37% to $134.6 billion last year,
according Inside Mortgage Finance.
On the other hand, Quicken Loans Inc., the nation's largest
nonbank lender, boosted its market share by two percentage points
last year to 6.3%. LoanDepot's market share more than quadrupled to
2.4%, while Guild Mortgage's share increased about 0.6 point to
1.6%.
Edward Golding, who heads the FHA, said his agency doesn't try
to control the mix of banks and nonbanks participating in the
program.
"We're personally very comfortable with the shift," said Mr.
Golding. "We want to make sure the borrower gets the right loan.
That's what we monitor and that's what's important to us."
There are potential risks to taxpayers stemming from the rise of
nonbanks. Lenders that pool and service Ginnie Mae-backed mortgages
are responsible for keeping payments flowing to bondholders even as
the borrowers behind loans slip into and out of delinquency, which
can cause liquidity problems for some nonbanks, said Mr. Tozer of
Ginnie Mae.
In the past year, Mr. Tozer said, his staff has had to advise
some nonbanks on how to create liquidity to make those payments.
Without extra staff, he might increase Ginnie Mae servicers' cash
reserve requirements, a move he thinks could increase borrowers'
costs by more than 0.1 percentage point.
Taxpayers also can face an increased risk from nonbanks that
might not have the financial wherewithal to pay penalties down the
line if their own loans have mistakes, said Laurie Goodman,
director of the Housing Finance Policy Center at the Urban
Institute.
Quicken Loans, the largest nonbank lender, already is running
into the same kind of legal trouble that prompted the big banks to
retreat. Last Thursday, the Justice Department brought a lawsuit
against Quicken, claiming the company defrauded the government by
making loans to borrowers it knew couldn't repay.
The lawsuit came on the heels of a lawsuit by Quicken against
the government, alleging that Justice Dept. officials had tried to
pressure executives into settling for fraud they didn't commit.
Depending on how the litigation goes, Quicken might follow the
big banks and pull back from making certain mortgages, said Quicken
Loans Chairman Dan Gilbert.
"You've already seen a serious backup from the FHA program among
major banks and lenders in the country," Mr. Gilbert said. "A
significant amount of it has been because of this."
A Justice Department spokeswoman in a statement said that the
pursuit of Quicken and others was justified: "The conduct that the
government has pursued reflects clear, systematic, and knowing
violations of meaningful and substantive FHA requirements, rather
than isolated, good-faith efforts to comply with those
requirements."
Write to Joe Light at joe.light@wsj.com
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