Ginnie In Brief
|How Ginnie Mae is strengthening the market for mortgage servicing rights|
|by Michael Drayne | 7/24/2018|
Mortgage servicing rights
The government mortgage market is very different from what it was ten or even five years ago, especially for Ginnie Mae. In 2011, four of the top five issuers of Ginnie Mae mortgage-backed securities (MBS) were banks; at the end of 2017 four of the top five issuers were non-depository mortgage banks.
This change has implications for how Ginnie Mae oversees the mortgage servicing rights (MSRs) that underlie its securities. Ginnie Mae MSRs come into being when mortgage loans are securitized — they are the right and obligation to collect and remit funds from the mortgages. MSRs are valued and shown on the balance sheet of the firm that has the responsibility for the servicing function. In a sense, MSRs are the collateral for the guaranty Ginnie Mae places on its mortgage-backed securities: if an approved lender/servicer fails to live up to its obligations under our MBS program, it may be required to forfeit the MSRs it holds, and the value associated with them.
The value of MSRs, and the health of the market in which they are financed and (sometimes) traded, has become increasingly important as a result of the shift from banks to non-banks in residential finance. This is because MSRs are typically a much more significant component of the financial structure of non-banks than they are for banks.
Following are examples of how Ginnie Mae is working to preserve the value of MSRs, and the health of the MSR market:
Combatting rapid loan prepayments from “churning”
As Ginnie Mae investigated a trend of persistently fast prepayments uncorrelated with economic conditions, it became apparent that the cause was lending practices that exploited the terms of the VA refinance program, in ways that were causing harm to veterans and losses to Ginnie Mae investors. We moved quickly and implemented new guidance that curbed the problem, and this was followed recently with federal legislation that should protect veterans for the long term. This will also give investors greater confidence in the value of securities, which translates into a lower cost of homeownership.
These actions will also have a positive impact on MSR values, because the harmful business practices also cause losses for the firms that invest in Ginnie Mae MSRs. Avoiding servicing losses where possible is worthwhile, because such losses are likely eventually to be passed along to homeowners.
Fostering increased investment in Ginnie Mae servicing
As we announced in our recent white paper, Ginnie Mae 2020, we are also exploring way to make financing more available to holders of Ginnie Mae MSRs, and to make it possible for a wider variety of institutions to participate in this market.
These would not necessarily be easy or quick things to accomplish, but we are pursuing them because the benefits of diversifying investment and financing in this field are large. Owning and servicing MSRs is a capital-intensive proposition, and the more avenues that exist for capital to flow into the system on attractive terms, the less likely it is that there will be a systemic breakdown that makes it more difficult to finance homeownership.
MSRs are an arcane, and in many ways underappreciated, topic but an effective MSR market has never been as important as it is now. Ginnie Mae can be relied upon to continue to look for ways to improve this segment of the overall residential finance system.
|A strong secondary mortgage market strengthens homeownership|
|by Michael R. Bright | 7/5/2018|
The housing market in the U.S. has stabilized from the crisis 10 years ago, in part due to the flexibility, adaptability and stewardship of the secondary market for government-backed home loans, and the solid value that the mortgage-backed securities (MBS) crafted from these loans represent to investors.
Ginnie Mae was a much smaller source of capital to the mortgage market prior to the housing crisis. In 2007 — the year before the housing crash — Ginnie Mae guaranteed $95 billion of MBS and averaged approximately $130 billion annually between 2000 and 2007. Approximately $444 billion of Ginnie Mae MBS were outstanding at the end of 2007.
Over the ensuing 10 years, the volume of Ginnie Mae MBS issued and outstanding climbed sharply, with 2017 issuance reaching $473 billion and the year-end outstanding balance hitting $1.9 trillion. To fuel that growth and remain responsible to our mission of maintaining a liquid and stable source of mortgage finance, for first-time homebuyers and veterans, Ginnie Mae adapted in two important ways.
First, Ginnie Mae seamlessly increased the number of Issuers in the MBS program. Our historic role as a source of mortgage capital in market turmoil worked. When conventional mortgage volume fell significantly, the government-backed mortgage market underpinning Ginnie Mae MBS was there to fill the gaps. Ginnie Mae kept its focus on efficiency and risk management during this growth and today is exploring additional methods to monitor risk to help further ensure the stability of the market, and the availability of home mortgage capital.
The sources of mortgage capital have grown along with Ginnie Mae, and global investors have been important participants. According to research prepared for Ginnie Mae by State Street Global Advisors and the Urban Institute’s Housing Finance Policy Center, foreign ownership of all MBS securities exceeded $830 billion at the end of 2016. (Data for 2017 are not available.) The researchers noted, “We expect that Ginnie Mae securities, with their explicit full-faith and credit guaranty, have greater appeal to foreign investors than Fannie Mae or Freddie Mac securities, which are implicitly guaranteed.”
The investment qualities of Ginnie Mae MBS and the operational excellence of our program that appeal to global investors, as evidenced by our growth, directly benefits homeowners, especially first-time homeowners whose mortgages comprise approximately 70 percent of our securities.
When I and others from Ginnie Mae travel abroad to speak to investors about our securities, invariably the discussion includes an overview of the place homeownership has in our country’s psyche. Survey after survey tells us that homeownership is a goal for more than 90 percent of adults. The strength of those aspirations is well received by investors and fuels Ginnie Mae’s commitment to provide the best MBS product that we can to attract the domestic and global capital necessary to do our part to help keep mortgage rates as affordable as possible.
These investors also want to know how Ginnie Mae is managing risk. The memory of the housing crisis only a decade ago remains at the forefront of many investors’ minds. So in addition to explaining the central role that homeownership has in the psychology and economy of America, we also explain our risk management framework. This framework focuses on having strong Issuers capable of weathering the changes that inevitably will come to the market and helping to ensure that there are lenders continuously in the marketplace able to provide mortgages to the millions of families each year who want to buy a home. Moreover, risk management involves monitoring the mortgage origination behavior of our Issuers to ensure the integrity of the securities. If investors at home and abroad can’t use market-based models to value our securities, they will step back from investing, hurting American homebuyers.
The mortgage finance system is complex, with participants stretching all across the globe, from local lending institutions on Main Street to the investment departments at banks in nearly 200 countries. But for all the system’s complexity, two aspects are simple: Homeownership is ingrained in America’s culture and aspirations, and Ginnie Mae will continue to offer programs that allow for growth and safely manage risk to keep mortgage capital flowing for America’s homeowners.
|Ginnie Mae 2020|
|by Michael Drayne | 6/20/2018|
Since our inception 50 years ago, we have proven ourselves to be a durable mainstay of the U.S. housing finance system, and the past decade at Ginnie Mae has been one of historic growth and change. Our market share has risen to a peak of 31 percent in recent years – up from just 4 percent in 2005 – and we are now the second largest guarantor of MBS, measured by securities outstanding. To keep pace with our expanded role in the housing finance system, we continue to explore new ways to meet the evolving needs of the mortgage market.
To educate the marketplace about the many ways Ginnie Mae is modernizing its platforms, programs and products in the coming years, Ginnie Mae is pleased to release Ginnie Mae 2020. A companion paper to Ginnie at 50, this paper will build on our 50-year history with a particular focus on our modernization efforts of the past seven years. It outlines our modernization efforts across three pillars of strategic focus to Ginnie Mae:
- Our mortgage-backed securities program and platform,
- Standards for managing counterparty risk, and
- Organizational innovation.
In addition to exploring these three pillars of change that will take us into the next decade and beyond, this paper discusses milestones Ginnie Mae plans to achieve by the year 2020.
Since 1968, Ginnie Mae has been flexible and stable enough to survive all market conditions, and we will continue this track record of success as we modernize and explore opportunities for innovation.
We encourage you to read Ginnie Mae 2020 to learn more about Ginnie Mae’s modernization goals through 2020, and for decades to come.
|Ginnie Mae at 50|
|by Michael R. Bright | 5/21/2018|
For the past 50 years, Ginnie Mae has provided countless Americans, including veterans, first-time homebuyers, and low- and moderate-income borrowers the opportunity for homeownership. We have played an integral role in expanding housing opportunity for Americans by bringing global capital to the U.S. housing market and maintaining stability and liquidity through all market cycles.
But – maybe understandably – many people don’t have a good sense of how this process works. So, to broaden public understanding of who Ginnie Mae is, what we do and how we do it, we’re pleased to release Ginnie at 50. This paper provides insights into our:
- 50-year history,
- Business model, and
- Six core functions.
We’ve come a long way since 1968, and will continue to evolve and modernize our platform, programs and products to ensure we’re fully-equipped for our current mission, and able to step up to any role policymakers may task our agency with in the future. So, please keep an eye out in the coming weeks for a complementary paper that addresses the other side of our story; where Ginnie Mae is headed in the future as we continue evolving to meet the needs of the dynamic housing finance marketplace.
In the meantime, we encourage you take a few minutes to read Ginnie at 50. Having done so, you will have a better grasp of one of the lesser understood, yet most important and durable pillars in the U.S. housing finance system.
|Who Does Ginnie Mae Finance?|
|by Ginnie Mae | 5/21/2018|
Ginnie Mae finances America. For 50 years Ginnie Mae has brought global capital to the U.S. housing finance market at minimal risk to the U.S. taxpayer. We've provided the liquidity and stability that helps millions of veterans and low- and moderate- income households find affordable homes.