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Ginnie In Brief

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by Ginnie Mae | 10/16/2019

Ginnie Mae’s data processing operations manage millions of data records each month, including the information that enables the flow of billions of dollars in principal and interest payments to investors around the world. To keep this enormous task running as smoothly and efficiently as possible, Ginnie Mae is investing in the development of artificial intelligence (AI) capabilities led by teams within the agency’s Office of Securities Operations and Office of Enterprise Data and Technology Solutions.

These efforts align with the Presidential order on AI from earlier this year, which serves as the basis for a whole-of-government strategy to tap private sector innovation in support of government program excellence.

AI encompasses a range of applications, processes and technologies. At Ginnie Mae, robotic process automation (RPA) is the first type of AI that we have deployed. Despite “robotic” as part of its name, RPA does not actually involve robots or other physical manipulative assets; RPA uses software to replicate repetitive human tasks such as the collection and analysis of data. (see Figure 1)

 

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Figure 1

In the second half of 2019, Ginnie Mae completed two RPA projects, or bots. The first is designed to collect and organize data related to the London Inter-bank Offered Rate (LIBOR), the principal index for the majority of adjustable rate mortgage-backed securities. The second bot assists staff within the agency’s Chief Financial Officer division to manage and report key information into the Ginnie Mae general ledger. Both bots free our staff to work on more value-added tasks, increasing the overall efficiency of the agency.

Although RPA is an excellent tool for increasing the efficiency of repeatable processes, it has also been important to recognize that not every repeatable process is the same. For example, research shows that RPA is best applied to processes that use structured and accessible data sources, such as the publicly available data on LIBOR or in-house financial statement data. RPA can also be used with unstructured data with a clear rules-based protocol for data manipulation. However, any break from the rules could cause an exception, or breakdown, that would require staff intervention, ultimately rendering the process ineffective.

As Ginnie Mae moves forward with its strategic and technology modernization plans, the agency intends to expand the number of RPA processes deployed and implement more sophisticated AI functions, such as machine learning, where appropriate.

Each phase of our modernization strategy will be governed by what is fiscally sound and secure. Our plan is to leverage capabilities of the private sector, as defined in the aforementioned Presidential order, as well as adopt or develop capabilities in partnership with leading-edge firms that advance our technological infrastructure. This strategy will effectively meet the changing needs of a sophisticated and nimble mortgage finance market, while keeping true to our mission to protect taxpayers and provide a robust secondary mortgage market for government home loans.

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by John T. Daugherty | 9/13/2019

Over the next several months, Ginnie Mae’s technology innovation will continue ramping up to meet the needs of the industry we serve. We’ve long understood that having the strongest possible technology platform is essential to handle our increasing volume — now at over $2 trillion of MBS outstanding.

In the coming months, we’re rolling out a number of new initiatives to benefit our industry partners:

  • MyGinnieMae Portal: Launching this year, this next-generation platform for stakeholders will provide a full-service solution to accessing our business applications in one secure place.
  • Centralized Help Desk: In 2020, we are looking to consolidate our existing 1-800 numbers into a single Help Desk that will better manage and organize inquiries based on their urgency and complexity. An improved documentation and classification system will also allow Ginnie Mae to identify areas of reoccurring need and performance improvements.
  • Single-Family Pool Delivery Module: Improving how we manage and align our data collection is an important aspect of our modernization efforts, especially given the industry’s ongoing expansion of digital mortgage issuance. With this new module, which will be launched as a pilot in the next few months, we aim to assist Issuers in delivering single-family pools, as well as to adapt to innovations within our industry.

These technology and systems innovations are being put into effect in accordance with our Ginnie Mae 2020 initiative we announced in June 2018.

At Ginnie Mae, the future is always just around the corner, and the implementation of these new services and platforms are just the latest elements in our ongoing technology upgrade. We’re very excited about what the future holds.

2019 Ginnie Mae Summit Opens Door for Continued Conversation
by Maren Kasper | 9/3/2019

At the 2019 Ginnie Mae Summit, Issuers, investors and industry participants convened to discuss topics ranging from our modernization efforts, to our recent efforts to mitigate counterparty risk, to broader topics, such as the general outlook of mortgage-backed securities. These are important conversations to be had – and it is not often that the mortgage industry gathers in one place for discourse about the future of the industry.

Our goal for the Summit was not just to engage in discussion for the two days of the event, but to start conversations that would be continued for years to come. We look forward to continuing the discussion at the MBA Annual this October and other upcoming events.

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by Michael Drayne | 8/22/2019

In 2018, Ginnie Mae developed a set of revisions to the MBS Guide’s treatment of counterparty risk, updating what is required to ensure the overall financial health of the Issuers who make guaranteed pass-through payments to Ginnie Mae MBS investors. The revisions are published in three installments: The first two came in November 2018 (APM 18-07) and March 2019 (APM 19-02), and Ginnie Mae is releasing the third today in the form of APM 19-06. 

This post provides useful information about a few of the items in APM 19-06, reflecting views about counterparty risk that we want to be sure Issuers and other stakeholders understand. Each of these policy enhancements was originally highlighted in the “Ginnie Mae 2020” report in 2018.

1.      Risk Parameters. We have increasingly incorporated additional guidance about risk into the MBS Guide. A prime example is Chapter 3, Part 21, Section B, which describes acceptable risk parameters, as well as situations that may represent departures from acceptable risk.   

In APM 19-06, we add a new item to the list of situations of concern: Secured debt that is greater than 60% of gross tangible assets. This metric, which is utilized in rating agency methodology, is important because an institution whose assets are heavily encumbered has less flexibility to use them to raise liquidity, should the need arise. While we are not stating a preference for unsecured debt nor are we establishing 60% as a hard compliance threshold, we are putting Issuers on notice that this metric is being closely monitored and that secured debt in excess of the stated level could impact future program management decisions.

2.      Concentration. Similarly, in Chapter 4, Part 8 and Chapter 21, Part 3, we introduce concentration of servicing or subservicing as a factor that could be included in our evaluation of a servicing transfer or subservicing approval request. This reflects the widely held view that concentration risk is a fundamental concern of portfolio management. Currently, Ginnie Mae does not have market share limits for Issuers or subservicers, and none are imminent. However, as the residential finance landscape continues to evolve, this issue needs to be part of the dialogue and, accordingly, we have introduced it to the MBS Guide. We understand that policy actions on this subject could have a significant impact on program participants and should be developed with ample opportunity for input by stakeholders.   

3.      Required Ratings. Finally, we are requiring that issuers whose portfolios exceed certain size thresholds obtain external servicer or credit ratings, as explained in Chapter 3, Part 18. As stated in “Ginnie Mae 2020,” we believe that “Issuers who attain a certain level of prominence within the housing finance system should be expected to make greater investments in transparency compared to other Issuers.” It is likely that the required rating thresholds will be utilized in the implementation of other policy actions in the future, since as we have said in other places it is less appropriate than in the past to manage the MBS program on a one-size-fits-all basis.

The publication of APM 19-06 concludes our planned counterparty risk APM series, though we will certainly continue to work on this subject and, as a result, see more changes to the MBS Guide.  

Over the coming year, our efforts will be centered on the three topics we identified in our recent “Progress Update: Ginnie Mae 2020” report: Capital requirements, stress testing and resolution planning report. These will help constitute a “holistic framework” for managing counterparty risk as a guarantor and narrow the gap that exists between the prudential regulation standards that apply to federally insured banks and the various program standards that govern non-banks. These three focus areas stand to be a major part of our dialogue with stakeholders in the period ahead.

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by Maren Kasper | 8/1/2019

Today, we published an All-Participants Memorandum (APM) addressing pooling requirements for Veterans Administration (VA) refinance loans. Some of the items are necessary for the enactment of legislation, but one is a new restriction on the pooling of VA cash-out refinance loans — namely, limiting the securitization of such loans with LTV’s greater than 90% to custom securities. This APM coincides with the Federal Housing Administration’s announcement of a reduction in the allowable cash-out refinance limit in the program from 85% to 80%.

Ginnie Mae described its reason for considering restrictions on VA cash-out refinance lending in the Request for Input (RFI) published in May. The RFI articulated the concern that faster prepayment speeds for VA cash-out refinance lending were harming the market value of the Ginnie Mae II MIP securities and negatively impacting other types of loans included in the securities. The response to the RFI did not alter this point of view.

The 90% threshold reflects an attempt to balance the need to protect the security with the desire to support a broad lending benefit to veterans. The more aggressive action would have been to require that VA cash-out loans adhere to the same standard as FHA cash-outs (now 80%). Instead, Ginnie Mae chose a more limited approach.

We recognize this new restriction could have an impact on the pricing of high-LTV VA cash-out loans. However, the following points should be kept in mind:

  • The new 90% threshold for veteran borrowers is still significantly higher than the threshold for non-veteran borrowers (under the FHA or Fannie Mae/Freddie Mac programs).
  • Loans in excess of 90% are still eligible for inclusion in Ginnie Mae guaranteed securities, just not the GII MIP (because its vulnerability to volatile performance can affect pricing for a wide range of borrowers under the government-sponsored programs).

The development of a transparent, liquid market for cash-out loans, securitized through custom pools, is an objective that will be supported by Ginnie Mae. The other alternative paths for excluded cash-outs identified in the RFI were not strongly supported in the RFI responses and will not be pursued at this time.

Continued achievement of Ginnie Mae’s mission — to ensure housing affordability for the full spectrum of borrowers served by the federal homeownership programs — requires continual balancing of the interests of various participants and beneficiaries.

In this instance, Ginnie Mae’s determination was that the market penalty, which results from the relative propensity of VA cash-out refinances to pay off very quickly, is harmful to other borrowers financed via the GII MIP and that bringing the allowable LTV threshold closer to that which prevails in most other segments of the industry is the fairest approach to the problem.

Ginnie Mae continues to collaborate closely with the VA on this topic and stands ready to adjust its program requirements as warranted by VA’s continued work on the issue or by other developments.

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Last Modified: 6/22/2018 7:24 PM