Ginnie In Brief
|Send Us Your Input on Proposed Changes to Certain Loan Eligibility Parameters|
|by Maren Kasper | 5/7/2019|
Over the past 18 months, we’ve taken a number of steps to combat lending practices that harm the market predictability of Ginnie Mae mortgage-backed securities (MBS) and increase the cost to borrowers financed by the government mortgage programs Ginnie Mae supports. Loan-level data analysis and input provided by investors directly and clearly indicates that the Ginnie Mae II Multi-issuer Program (GII MIP) securities, backed by selected Veterans Affairs (VA) mortgages, are susceptible to refinance activities out of proportion to what should be expected from prevailing interest rates. In addition to their effect on Ginnie Mae MBS, such refinancing practices can negatively impact borrowers’ financial situations.
Deterioration in the pricing of our GII MIP securities translates directly into a higher cost of homeownership for the homeowners the Ginnie Mae MBS program is intended to serve, including all VA, FHA and USDA borrowers. Therefore, it’s vital we take the steps necessary to protect the value of the Ginnie Mae security. Doing so will ensure the lowest possible rates for all borrowers in the program and protect VA borrowers from excessively high borrowing costs.
As part of this effort, we’re evaluating whether to exclude or restrict certain categories of loans that have shown the tendency to pay off faster than loans originated under more restrictive FHA, Fannie Mae or Freddie Mac loan-to-value (LTV) policies. For example, we’re taking a targeted look at VA cash-out refinances in excess of 90%. To support our evaluation, we’ve issued a request for input to solicit thoughts from stakeholders about the impacts of potential changes.
We know placing restrictions on any loan category has implications for borrowers, our Issuers and, ultimately, investors in our security. Because of this, we’re seeking guidance, which we will review carefully.
The RFI seeks insight into:
- The acceptability of pooling mortgages by different loan categories based on varying expected prepayment performance.
- Whether the threshold for our contemplated restriction should be set at a 90% LTV.
- What the impact of high LTV VA cash-out refinances is on the pricing of GII MIP.
- Alternative paths for the securitization of loan categories that we want to restrict from the GII MIP.
Ginnie Mae has the authority to implement requirements for acceptable loan characteristics on mortgages issued into our securities if we believe doing so is essential to the overall effectiveness of the MBS program. We’re committed to using in-depth analysis and evaluation to make educated decisions that will help protect the price of the security. Maintaining the value of Ginnie Mae securities in the market is the surest way for us to help keep mortgage rates low for American homeowners.
Read the request for information.
Respond to the request by emailing email@example.com no later than 3 pm Eastern Time on May 31, 2019. Responses will be kept confidential and will not be made available to the public.
|What You Can Expect at the 2019 Ginnie Mae Summit|
|by Maren Kasper | 4/9/2019|
The 2019 Ginnie Mae Summit, scheduled for June 13-14, is your chance to meet and network with members of the mortgage finance industry. It is a unique opportunity for issuers, lenders, investors and policymakers to convene in the same room and discuss topics ranging from counterparty risk to platform modernization. In the above video, Ginnie Mae’s Acting President and EVP Maren Kasper discusses the reasons why this event is one that members of the mortgage finance industry will not want to miss.
Registration and hotel accommodations are filling up fast, so be sure to book soon: https://bit.ly/2K1hL2r
|How Our Work Protecting the Ginnie Mae Security Helps Expand Homeownership|
|by Maren Kasper | 3/21/2019|
Every time Ginnie Mae takes a step to strengthen the value, performance and desirability of our security, we have one goal in mind: expanding homeownership in America. It’s at the heart of our mission and what we were created to do.
Protecting the Ginnie Mae security ensures liquidity in the market, accessibility for borrowers and stability for investors.
Expanding global market awareness and overseas demand for Ginnie Mae mortgage-backed securities is one way we are increasing liquidity. That helps lower costs and expand opportunity for low- and moderate-income borrowers. Ensuring investors have confidence in the Ginnie Mae security is paramount to the functioning of the U.S. system of housing finance in which we play such an important role. In doing so, we’re able to increase global capital flows in support of the U.S. housing market. At the end of February, foreign investors held almost 24 percent of Ginnie Mae MBS.
To understand why protecting our security is so critically important to Ginnie Mae and our mission, we point to the reasons the U.S. Congress established our agency in 1968. Congress chartered Ginnie Mae to perform five primary functions:
- Provide stability in the secondary market for residential mortgages;
- Respond appropriately to the private capital market;
- Provide ongoing assistance to the secondary market for residential mortgages by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing;
- Promote access to mortgage credit throughout the nation; and
- Manage and liquidate federally owned mortgage portfolios while minimizing adverse effects on the residential mortgage market and loss to the government.
In other words, responding to concerns about security protection is not just a top priority for us. It’s our statutory obligation as we continue to innovate new solutions to minimize risk for participants in the secondary market.
Ginnie Mae is committed to eliminating the problem of prepayment speeds that evidence material deviations from market norms and without reasonable connection to economic fundamentals. We are working with issuers to highlight responsible lending practices that will not only have a positive impact on the borrowers they serve, but also protect our security — which helps the entire housing-finance ecosystem.
The Ginnie Mae program has enjoyed 50 years of success despite significant changes in the market for mortgage finance. This success has been achieved with the support of market participants cognizant of the need for Ginnie Mae to evolve its approach to changed circumstances. The advent of continuous monitoring of prepayment performance and the adoption of policy changes necessary to protect our security is another significant step in the development of the program. Our work is not done. We are fully committed to eradicating concerns about market instability that excessive prepayment speeds create so that investors can confidently rely on a more market-predictable security, in order to serve borrowers with safe, affordable and sustainable mortgage financing.
|A Helpful Conversation on Counterparty Risk|
|by Maren Kasper | 3/8/2019|
In late February, the Mortgage Bankers Association published a white paper entitled “The Rising Role of the Independent Mortgage Bank – Benefits and Policy Implications.” It’s a helpful addition to the ongoing dialogue around counterparty risk in the housing finance system.
At Ginnie Mae, we dedicate significant energy and focus to evolving our approach to counterparty risk management in order to safeguard the government guaranty we provide and to protect investors. The American system of housing finance is a complex ecosystem involving primary lenders, the secondary market, insurers, banks and non-banks and government agencies. It’s important to keep a robust conversation going about the evolution of our industry and the way systemic risk is affected by policy changes and industry evolution.
Particularly because it focuses on one of the most notable trends in the housing finance system – the increasing share of originations stemming from so-called non-banks – the MBA’s white paper is a helpful addition to the discussion.
Last year, we published “Ginnie Mae 2020,” which included an extensive section on our thinking about enhancing counterparty risk management. This wasn’t the first time we addressed the importance of liquidity in the post-financial crisis era, which is an especially important topic given how our service to the market has increased over time. In 2014, we also published our white paper, “An Era of Transformation.”
As the Brookings Institution points out in its February 2018 paper, “Liquidity Crises in the Mortgage Market,” the U.S. housing finance system’s vulnerability to a liquidity crisis is underappreciated. Industry participants such as the MBA weighing in on the topic of counterparty risk is important to educating key audiences and stimulating dialogue. We do not necessarily need to endorse every suggestion or even such a paper’s broader conclusions to welcome the MBA’s serious contribution to the conversation.
The MBA’s paper leans into the concept of “counterparty oversight” by Ginnie Mae and others. We welcome that important role, and view it as our responsibility to foster greater dialogue about the range of issues attendant to counterparty risk. This is one reason among many that we so look forward to the Ginnie Mae Summit, which will take place on June 13th and 14th.
Understanding how the housing finance system’s risk profile is affected by the increase in mortgage originations by non-banks is just one development, among many, that we are keeping a close eye on. That organizations such as the MBA are willing to join this conversation is an important, and welcome, development.
|As 2019 Takes Shape|
|by Maren Kasper | 2/26/2019|
2019 is shaping up to be a year of execution for Ginnie Mae. Now that the start of the year is behind us, mid-February provides just enough perspective to think about the past year as a whole, and enough data to anticipate how the current year will unfold.
2018 was a historic year for Ginnie Mae, as we passed the $2 trillion mark in outstanding mortgage-backed securities (MBS). We continued to improve our capabilities and refine our mission orientation. With the publication of “Ginnie Mae at 50,” we celebrated an important birthday and provided an update on our evolution in service to low-income, first-time homebuyers, veterans and rural homeowners. Our “Ginnie 2020” white paper showcased a multi-year strategic roadmap which will enable us to evolve our counterparty risk management and modernize the platform as we continue expanding our capacity to fulfill our mission.
2019 is off to a strong start, with the positive impact of our MBS program on borrowers we serve and investors undiminished by the partial shutdown of governmental functions that straddled the new year. We are resolved to make this a year of enhanced communication and increased transparency with our Issuers and market participants. The rescheduled Ginnie Mae Summit, to be held on June 13th and 14th, will be an excellent forum for discussion and interaction with Ginnie Mae stakeholders.
Ginnie Mae is doing all that it can to support the borrowers that benefit from our program. We know that the best way possible to accomplish this is to ensure the Ginnie Mae security performs well and meets the expectations of global investors whose investment capital provides the funds that flow to our Issuers and their borrowers.
An area of continued focus is VA churning and outlier prepayment speeds in the Ginnie Mae security. Although our efforts to date have helped address the issue, prepayment speeds on certain product types are still not in line with market dynamics, particularly in a flat to rising rate environment. Ginnie Mae remains committed to addressing this issue in the security and will continue to evolve our polices to ensure that the cash flows of the Ginnie Mae security are strongly correlated with economic factors. We strongly believe that is not warranted for the actions of a few to an outsized adverse impact on all borrowers in the program.
Another way to ensure Ginnie Mae facilitates a strong market for its MBS is through a robust counterparty risk management framework.
Ginnie Mae is the midst of evolving our risk management methodology, and our goal is to work closely in this with the non-bank lender/servicers whose market share has risen so much in recent years. We view the non-banks as a vital component of the housing finance ecosystem, filling an important role in the market by extending credit (particularly to those borrowers who rely on federal mortgage programs), helping the industry to evolve technologically, and improving customer care for troubled borrowers. We also intend to take steps that help ensure that Ginnie Mae mortgage servicing rights (MSRs) generate an appropriate level of cash flow and are supported by an adequate level of market liquidity.
Given our responsibility to mitigate risk, in 2019, Ginnie Mae will continue to be focused on ensuring that there is enough capital and liquidity in the system to withstand various economic cycles and that our policies and procedures are sufficient in the event of any market disruption. These steps not only protect the agency, and ultimately American taxpayers, but should also ensure more stable and affordable access to mortgage financing.
With 2019 now firmly underway, we look forward to a robust dialogue with market participants and stakeholders so that together we may better serve the low-income, first-time homebuyers, veterans and rural homeowners that depend on Ginnie Mae.
“Ginnie In Brief” was launched last year, as a means of offering insight into how Ginnie Mae views market developments. Watch this space, as we continue to provide updates on our perspective in the months ahead.