Remarks by Ted Tozer, President, Ginnie Mae

American Securitization Forum 2013
General Session: U.S. Housing Finance Reform

Monday, January 28, 2013
Las Vegas, Nevada

Moderator: Ted, we’ve seen Ginnie, you know, pretty strong over the past year. What do you think of the point that is raised here? What are some of these non-GSE specific rules about?

Tozer: I think it’s important for the structure as far as all of them over the next few years, we need to see an evolution in the private sector. The GSE has been setting the standard, but we’re down.

[...]

Moderator: Ted, any sense as to when the Administration might have more specifics to flesh out on any of the three options they explored two years ago?

Tozer: No, I think the Administration acknowledges that the housing – I mean, it’s in the process of recovery.

[...]

Moderator: Ted, what do you think about that? Because that sounds more like the Ginnie Mae model.

Tozer: You are correct, as far as the Ginnie Mae model, the guarantee is put in such a position where the guarantee is going to be called upon. It’s really interesting, because the issues that we’re seeing right now are with FHA and Fannie and Freddie Mac, as they are, first of all, at a loss in their calculation. They need to have accurate pricing. This is more imperative than what Ginnie Mae has for our structure; the lender actually is obligated to pay Ginnie Mae faster. We guarantee that lenders are willing to pay, that servicers are willing to pay, that borrowers are willing to pay, which is a different structure. It doesn’t have the guarantee to bring input at a lower cost.

[...]

Tozer: One thing that’s interesting, talking about the smaller footprint: The thing people don’t realize is that our housing market has gotten so large we’ve had to rely on private capital to support our housing market. In my experiences talking to investors worldwide, I don’t think it’s a long time before they ever get back and buy AAA securities in a guaranteed position. The concern we have is if we go back to 30% like Jim [Lockhart] talked about, I would think we would see a substantial reduction in the size of the market.

To share a story: I was talking to a large money manager from Asia, and he told me stories. He said, “Back in the late 90s, I convinced my organization to buy AAA, subprime securities. It didn’t work out well. Then we decided, you know, this market we think is settled down, so in 2006, 2005, we decided to jump back in again.” And he said, “It didn’t work out well.” And he said, “Third time is not a charm.” He said he’ll never get back into U.S. government or U.S. mortgage markets. He said, “In reality, I don’t even know where Arizona’s at.” He said, “I need a commodity. I need something I can buy – some large blocs, something that’s a commodity. I can’t afford the loss.”

So one thing I guess we need to talk about is: What size does our market need to be? Do we need to go to $11 trillion, $12 trillion, or do we shrink it back to $4, $5, $6 billion. One thing I see right now is that that the government guarantee does attract foreign capital; that is probably the question we should acknowledge.