Last week, the Bipartisan Policy Center’s (BPC) Housing Commission released its much anticipated report, “Housing America’s Future: New Directions for National Policy.” The report sets out a new framework for our federal housing finance system and is an important step toward housing policy reform. We encourage you to review the recommendations outlined in the report.
Specifically, the Housing Commission has proposed to replace the Government-Sponsored Enterprises (GSEs) with an independent, wholly owned government corporation – the “Public Guarantor.” The Public Guarantor would provide a limited catastrophic government guarantee for both the single-family and rental markets. The model for the Public Guarantor endorsed by the Housing Commission is similar to the Ginnie Mae business model used today. In addition, the BPC reinforces the importance of private capital and the important role it plays in the future of housing finance, particularly as it relates to credit risk. We applaud the BPC’s commitment to the issues surrounding America’s housing policy and appreciate its recognition of the benefits of Ginnie Mae’s business model.
Ginnie Mae has been, and continues to be, an active participant in the housing finance debate. More than ever, though, we believe that the industry should go back to the basics. Let’s ask ourselves the tough questions. What role should the federal government play? How do we attract private capital? How will risk be managed? How big should the market be? How do we ensure that low to moderate income individuals have access to credit? These are not easy questions to answer. Nonetheless, we must get the answers right if we want to ensure the sustainability of a strong housing finance system in America.
Global investors value an explicit U.S. government guarantee. And, our system remains the envy around the world. But, the question of when the government should step in remains unanswered. There are many options currently under consideration for long-term reform. The common thread across all of them is determining what type of government guarantee will be put into place.
At Ginnie Mae, we believe that regardless of which option is implemented, it should encompass five critical elements:
- Alignment of interests across all stakeholders
- Sufficient scale to attract wide participation
- Broad access to capital
- Robust disclosure of underlying assets
- Well-functioning To-Be-Announced (TBA) market
Essential to the future housing finance model is an alignment of economic interests for all those involved in the process – from borrower and Issuer to insurer and investor. In addition, the industry must deliver sufficient scale to attract wide participation and to capture all economic conditions. That means allowing a role for small to mid-size lenders so that participation arrives at critical mass. It also means providing investors with the appropriate disclosures to make sound investment decisions. Most importantly, it means eliminating barriers to credit for low and moderate borrowers and ensuring that lenders treat all borrowers equally. We must set people up for success.
Only through execution of these five critical elements can we ensure a robust, well-functioning TBA market. Preserving the 30-year mortgage and the TBA market that supports this valuable asset is an imperative. A thriving TBA market offers broad access to capital and liquidity and efficiency in pricing that ultimately benefits the borrower.
The full faith and credit guaranty separates Ginnie Mae from all other MBS guarantors, including the GSEs. Ginnie Mae’s business model demonstrates that the strength of that guaranty, when used prudently, can support a healthy, sustainable program. Despite significant changes to the industry in recent years, the traditional Ginnie Mae low-risk business model has remained intact. We have been effective in raising capital and continue to bring liquidity to the market, regardless of the economic environment. A key aspect of what makes our model so unique and, ultimately, successful is that Ginnie Mae lenders have “skin in the game.” That means that taxpayers are protected from credit risk because the lenders remain financially responsible for the securities they issue.
In the coming months, industry leaders will determine how best to strike the optimal balance between government involvement and minimizing risk. The industry must also tackle the immediate task at hand. That is, scale back the government’s role and promote the return of private capital. Ginnie Mae is doing its part. We do so by consistently delivering top securitization capabilities and operational expertise to America’s housing finance system, and we remain committed to helping rebuild America’s housing finance system. We look forward to future discussions with the Administration and other market participants, as well as further dialogue surrounding the recommendations set forth by the BPC.