Ginnie Mae Releases Guidance on Treatment of Preferred Equity for MBS Program

Ginnie Mae recently announced changes to the methodology used to determine the extent to which non-depository financial institutions may rely on preferred equity to meet certain Mortgage-Backed Securities (MBS) program capital requirements.  These changes went into effect on July 2, 2020.

Ginnie Mae requires applicants to meet certain liquidity and institution-wide capital requirements in order to be approved as a Ginnie Mae Issuer.  For example, the MBS Guide provides that “non-depository financial institutions must have a ratio of Total Adjusted Net Worth (as defined by Ginnie Mae) to Total Assets of 6% or greater in order to meet institution-wide capital requirements for participation in the MBS program.”  In the announcement, Ginnie Mae noted it will use new factors to determine whether an Issuer’s preferred equity can be included in the Issuer’s financial statements for purposes of the Total Adjusted Net Worth computation.  Ginnie Mae stated these factors include, but are not limited to: (i) the Issuer’s ability to defer or suspend dividend payments to preferred equity holders; (ii) whether the preferred equity is cumulative or non-cumulative; (iii) the seniority and maturity of the preferred equity at issue; and (iv) the Issuer’s ability to convert preferred equity to common equity.