Ginnie Mae Summit
September 21, 2015
Welcome to Ginnie Mae’s 2015 Summit!
It’s great to see so many people here at our third Summit. This event has grown each year -- both in importance to the industry and in the number of attendees. This year we have about 700 people – our largest crowd ever.
And it’s truly international group. We have representatives here this morning from the British Embassy as well as the Chinese and Japanese governments. To them I say: o’hayou and nǐhǎo. So thank you for being here. Thank you for being our partner.
We have a great program in store for you – from workshops covering everything going on at Ginnie Mae – to the big issues facing our industry. We look forward to your feedback. Everyone here today, particularly if you are a Ginnie Mae Issuer -- has been a part of the biggest transformation in the history of mortgage finance.
The theme of the conference this year is “game changers.”
Ginnie Mae was actually created based on the idea that the environment would stay static — that the game would NOT change.
Our infrastructure, including our small staff, was based on the premise that the MBS program would never change. All we really needed to do was keep the assembly line running. But TODAY, almost nothing we do would work on an assembly line.
You have probably heard me talk about the massive shift in our issuer base --to independent mortgage bankers. New business models for managing mortgage servicing rights. Layer upon layer of confusing and conflicting regulations. And a more prominent FHA and VA.
These things and more have changed the game for all of us.
We work every day because we know that having a home is the ultimate game changer in the lives of the American people.
So again, thank you for being our partner.
This morning I want to look ahead, and talk about how we are meeting the challenges I just referenced.
But first, let’s take a minute to look back -- at what we have accomplished together in the past five years.
- In fiscal year 2015 alone, there are over 4.9 million families, most of modest financial means, that have directly benefitted from a Ginnie Mae guaranteed securitization. That’s because of you!
- Experienced NO interruption in getting a mortgage. And that’s because of you!
- Ginnie Mae took a chance when we embraced and supported independent mortgage bankers in our program. This decision turned out to be the right one – certainly in keeping credit access flowing. In the last 4 years, over 5.4 million borrowers have benefitted because Ginnie Mae welcomed independent mortgage bankers. If we had acted differently, either these people would have had to pay more for their mortgage or they would have been locked out of the market completely. Because of you, these families have an affordable mortgage and a place to call home!
- Also during the last four years, Ginnie Mae issuers pumped an additional $602 billion into U.S. housing - - while Fannie Mae and Freddie Mac’s presence was minimal at best. That’s because of you!
- And, if you look at the monthly volumes reported from the GSE’s and Ginnie Mae in the last two months ... you’ll see we have surged to the top of the industry. And that’s because of you – and you – and you!
These are impressive achievements. Together we made a difference!
So, things are going well. Mark Zandi will tell you later today that we are in the “SWEET SPOT” What could possibly go wrong? Well, now it is the time in my speech when I introduce the word “BUT.” Are you ready?
Yes, we’ve had great success - - BUT if Ginnie Mae’s resource challenges are not addressed, we have to slow down that assembly line.
Here’s why. Five years ago, Ginnie Mae was like the little engine that could, churning along with a business model designed for issuers that were mostly large or regional banks. They had strong and simple balance sheets, financial structures that were relatively simple, yet even in that environment, Ginnie Mae could barely keep up with just 60 employees. Our engine was huffing and puffing and it was definitely struggling.
Many of you know what has happened since then. Our issuer base has doubled. Today almost two thirds of Ginnie Mae guaranteed securities are issued by independent mortgage banks. And independent mortgage bankers are using some of the most sophisticated financial engineering that this industry has ever seen.
We are also seeing greater dependence on credit lines, securitization involving multiple players, and more frequent trading of servicing rights -- all these things have created a new and challenging environment for Ginnie Mae.
Frankly, as we look forward to the future, I do not believe that we have a large enough engine to deal with the steep hill in front of us.
In other words, the risk is a lot higher and business models of our issuers are a lot more complex. Add in sharply higher annual volumes, and these risks are amplified many times over.
To confront this level of enhanced risk, we simply must become a different organization. Right now, we are doing the best we can with what we have – but the challenges keep growing.
Our budget, which stands at $23 million for salaries and expenses, simply does not allow us to make the changes needed to keep pace with the transformation that has occurred in the industry. We are managing a $1.6 trillion portfolio of outstanding guarantees. On a monthly basis, we are doing more business than either Fannie Mae or Freddie Mac.
Yet we are operating with infrastructure and platforms that sometimes remind me of the military’s use of pontoon bridges – temporary structures that are cobbled together to deal with unexpected obstacles or challenges.
Also, we have depended on sheer luck. Luck that the economy does not fall into recession and increase mortgage delinquencies. Luck that our independent mortgage bankers remain able to access their lines of credit. And luck that nothing critical falls through the cracks.
If you think about the impact that Ginnie Mae has -- in the mortgage finance industry, and on the economy at large, it is too important to leave any part of it to luck. Instead, we need to face up to the challenges presented by the new environment.
Fortunately, we’ve got a plan to do just that.
- One that builds out a process to monitor issuers, with sophisticated financial oversight capacities similar to those of the FDIC.
- One that will give us the needed resources to recruit and retain talented staff.
- One that will create a new operating infrastructure and platforms that replace all of those pontoon bridges, with permanent steel reinforcements – strong enough to manage over 430 issuers no matter how complex their business model.
- One that creates a risk-management system that supports millions of families who depend on government mortgages. Our vision for the future represents a new standard for Ginnie Mae and for housing finance in America.
A security that preserves our guarantee, which makes the 30-year mortgage possible, BUT puts the government in the most remote position of risk. A common security that creates what some have called the ultimate level playing field. And one that attracts broad and diverse mortgage investors, both here and abroad. An operating securitization platform that is flexible and durable enough to handle fluctuations in the mortgage market, but provides standard data to investors that they can trust. And a business model where private capital gets the most reward, but also bears most of the risk.
That’s our vision for the future -- a future we will have together. It can create game changers in the lives of the people we serve.
However, whether we have the resources to implement this vision is not entirely up to us. The reality is that we depend on Congress to support the increased funding required to implement this vision.
Currently, our budget request of just $5 million additional dollars, has been denied by Congress. This is in spite of the fact that we don’t use a dime of taxpayer money. In fact, last year we made $1.5 billion in profit, and on average have generated an annual profit of more than $900 million for the U.S. Treasury over the past five years.
We realize that the industry is currently grappling with an uncertain regulatory environment that is challenging to say the least. We don’t want to create additional obstacles, but Ginnie Mae has to do SOMETHING.
So in the coming weeks and months we will make announcements about the steps that we will be taking until our staffing situation improves. But even so, I am still focused on a favorable outcome. Together I believe we can continue to make a difference.
The alternative would be to remove the opportunity for affordable mortgage finance from millions of people because Ginnie Mae has to back away from the market.
For almost 50 years, Ginnie Mae has served the mortgage markets well. We have introduced historic innovations, such as the mortgage-backed security. We have weathered many a storm as business cycles come and go, including the Great Recession, perhaps the biggest threat to the mortgage finance industry since the Great Depression. Together we made sure that, even during the worst times, qualified borrowers could still get a mortgage.
In fact, I sometimes wonder if the interruption was so minor that it obscured the challenges that I have talked about today - -We might have made it look too easy.
Through it all Ginnie Mae has persevered. And what has remained steady through all of this change and upheaval is that we’ve always met our two primary responsibilities:
1) maintaining our common securitization platform; and,
2) protecting the government guarantee.
Today, I believe we are at a crossroads in the history of housing finance in America.
The decisions made by Congress, policy makers and many of us in this room will have consequences for millions of people – homeowners, renters, and people in assisted living. For veterans who depend upon what we do in order to access a benefit that they have earned by defending our country. Because ultimately we are deciding whether our programs will serve the many – or just a select few.
To me, making sure that people have access to affordable mortgage credit, well, that is the ultimate game changer.
Thank you again for coming, and I hope that you enjoy the rest of the Summit.