Increasing Capital & Liquidity for GNMA Mortgage Servicing Rights

Abstract

This paper reviews the research literature concerning mortgage servicing rights (MSR) and mortgage finance more generally. We then review the history of financing the acquisition of MSRs in the market for loans guaranteed by the Federal Housing Administration (FHA) and securities guaranteed by the Government National Mortgage Association (GNMA). The paper then focuses on the credit relationship between GNMA and the issuers operating in that market, with particular emphasis on separating the loan servicing function from the investment in the MSR. The paper notes that state law regulation seems to be suppressing competition for GNMA MSRs by limiting participation by smaller investors. The paper makes several proposals as to amendments to the GNMA Acknowledgement Agreement (AA) governing the credit relationship between the FHA, GNMA and the issuer to support the goal of increasing the liquidity of the GNMA MSR market.

Keywords: Mortgage, Mortgage Servicing Rights, MSR, Federal Housing Administration, Ginnie Mae, HUD, Non-Banks, Lending, Servicing, Funding

JEL Classification: G00, G20, G23, G32, G33, G38, K2, K23, M2, M48, N2