A report from the Wall Street Journal. "One of the principal gatekeepers to housing-finance markets is stepping up scrutiny of nonbank mortgage lenders, concerned that some may not have the financial heft needed to overcome stressed conditions."

"The increased oversight by the Government National Mortgage Association, or Ginnie Mae, comes as nonbank lenders play an ever-bigger role in making mortgages to Americans and as housing markets are cooling. Many of these companies flourished after the financial crisis as banks stepped back from the mortgage market but haven’t yet been tested by an economic downturn."

"For the first time in recent memory, the agency has asked a handful of these lenders to improve certain financial metrics before granting them full ability to continue issuing Ginnie-backed mortgage bonds, according to Maren Kasper, who stepped in as Ginnie’s acting head this month. In the meantime, it has been granting approvals with shorter time frames to the lenders."

"Ginnie has also undertaken its first stress tests of business partners. The exams look at how lenders’ and servicers’ monthly cash-flow obligations would hold up if they reduced loan production and margins while increasing delinquencies. The results are expected shortly."

"Ginnie is particularly exposed to nonbank lenders. These firms service 61% of loans in securities issued by Ginnie, up from 34% at the end of 2014. What’s more, Ginnie’s outstanding issuance of mortgage bonds has grown fivefold since the financial crisis to $2 trillion. 'It’s uncharted territory,' Ms. Kasper said."

"Neither Ms. Kasper nor others in the industry expect chaos in the mortgage market. But with mortgage refinancing recently falling to its lowest level in 18 years, nonbank lenders face new strains. Government officials and economists are concerned that many of these companies may not be able to tap the more stable sources of financing available to bank lenders if they face a cash crunch."

"Last year, there were 31 mergers and acquisitions in the mortgage industry, nearly three times the amount in 2017, according to Stratmor Group. Moody’s Investors Service said that about a third of the nonbank mortgage lenders graded by the rating company aren’t profitable right now, which means they likely need waivers from their own lenders to be able to keep accessing cash to make mortgages. It didn’t name the companies."

"While Ginnie executives have been flagging this issue for years, it is gaining a wider audience as nonbank lenders have struggled over the past year. In a paper last year, economists at the Federal Reserve raised concerns over unique funding challenges that nonbank servicers face, especially for those who manage payments on Ginnie bonds."

"'This is not a system that has ever been tested in a time of stress,' said Karen Pence, one of the authors, in presenting her findings at a Brookings Institution conference last year. 'We question whether it is wise to concentrate so much risk in a sector of the economy that has little capacity to bear it and has a history, at least during the financial crisis, of going out of business.'"

"There isn’t any single agency responsible for directly overseeing such nonbank entities."