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Speeches

Remarks by President Tozer from the 5th Asia Pacific Ministerial Conference on Housing and Urban Development
Published Date: 11/3/2014
Remarks by President Tozer
November 3, 2014

PRESIDENT TOZER: Vice Minister Kim, thank you for the kind introduction. It is an honor to be here again at the International Forum on Housing Finance.

On behalf of the United States’ Secretary of Housing and Urban Development, Julián Castro and Ginnie Mae, I congratulate the Ministry of Land, Infrastructure and Transport for organizing this important event. It is great that so many leaders in international housing finance are here today. I also want to congratulate the participants here at this conference.

When it comes to housing and urban development, our nations share common interests. We seek—as President Franklin Delano Roosevelt declared in 1941— “Freedom from Want,” the right to an adequate standard of living that secures prosperity for our people.

We come here looking for the same thing – the economic security that is at the core of today’s working group on housing finance. I commend you for making affordable housing finance a key principle in your work

Today, housing finance is a crucially important topic across the globe. The impact that urbanization has on sustainable housing is important in both domestic and international contexts.

In the case of the United States, more than 80% of U.S. households live in urban areas. More than 90% of U.S. population growth occurred in cities and metropolitan areas in the last decade. This trend is not unique to the United States; it is global.

The world recently passed a momentous milestone in which the majority of the world’s population now lives in urban areas. This unprecedented urban growth has profound implications for virtually every aspect of sustainable development. A full 60% percent of the land area expected to be urban by 2030, has yet to be built.

Let me repeat this, three-fifths of our cities have yet to be created.

Such a staggering statistic has serious policy implications. This means that the choices we make will determine whether our future communities are successful. Our actions over the next 10-15 years will determine the extent to which cities become drivers of innovation and economic growth. Our decisions will also affect social inclusion and environmental resiliency.

Mistakes we make today can have the unintended effect of deepening inequalities, stunting growth and exacerbating environmental risks.

At Ginnie Mae, we are convinced that our success requires us to adopt a cross-disciplinary approach to urbanization and housing finance that breaks down the traditional government policy siloes. This conference is one example of such an effort to examine and exchange best practices for a brighter future. Congratulations to you for bringing us all together.

 As we have heard throughout this conference, our cities have significant economic and social importance, yet our communities face enormous challenges. Challenges related to affordable housing and infrastructure require innovation in public finance and private investment. As communities across the world continue to urbanize, a critical question will be how do we finance these investments in our communities?

We are helping find answers to this question today. We are discussing two issues of incredible importance, not only to Ginnie Mae, but to the global housing finance community at-large. The topics of: Financing Sustainable Housing and Housing Finance for Equal Opportunity are two principals deeply embedded in Ginnie Mae’s work.

Ginnie Mae is a wholly government owned corporation. Through the liquidity we provide to the mortgage finance market, and the capital that flows to lenders, we are helping make sure that financing for affordable housing is available to millions of low- and moderate income households across the United States. And we accomplish this with a sustainable business model that provides equal opportunity regardless of income or location—urban or rural.

Ginnie Mae facilitates housing finance in the single-family “ownership” space, and we also finance affordable rental housing, assisted living, healthcare and home equity conversion mortgages for senior citizens.

Ginnie Mae’s primary mission is to channel global capital into the national housing market. Our guarantee is at the heart of our business model.

We guarantee the timely payment of principal and interest on Mortgage-Backed Securities or MBS. We provide guarantees to the securities of federally insured or guaranteed loans that allow mortgage lenders to obtain a better price for their mortgage loans in the secondary mortgage market.

Let me explain how the Ginnie Mae business model works.

We do not buy or sell mortgages. Ginnie Mae Mortgage-Backed Securities, or MBS, are issued by financial institutions. These issuers pay Ginnie Mae a guaranty fee. The Ginnie Mae guaranty allows issuers/lenders to obtain funding at comparable interest rates paid for other sovereign bonds.

Our risk model stands behind three layers of protection: homeowner equity; insurance provided by the government agency that insured the loans; and corporate resources of the entity that issued the security.

The success of Ginnie Mae’s model is based on a balance of three things: the relationship of the private market with the U.S. government; delivering top securitization capabilities, and the explicit guarantee of the government that attracts global capital to America’s housing finance system.

It took an important understanding and recognition of historical developments in the U.S. housing finance market for Ginnie Mae to evolve. This success reflects the economic changes and the historical relationship between the government and the housing market. In the United States.

Ginnie Mae’s origins trace back to the Great Depression of the 1930’s, when historically high unemployment rates led to an unprecedented wave of loan defaults. The resulting surge in home foreclosures further depressed housing values and the nation’s overall economy. Congress passed the National Housing Act of 1934, a key component of the New Deal. The Act created the Federal Housing Administration (FHA) to help resuscitate the U.S. housing market and protect lenders from mortgage default.

FHA was a national mortgage loan insurance program. It encouraged banks, building and loan associations, and other institutions, to make loans because of the insurance against losses provided by the government.

In 1968, Congress created Ginnie Mae to focus on providing a guaranty backed by the full faith and credit of the United States for the timely payment of principal and interest on Mortgage Backed Securities, or MBS, secured by pools of government home loans. These loans are insured or guaranteed by the FHA, the Department of Veterans Affairs’ (VA), and the Department of Agriculture’s Rural Development program.

The VA’s home loan guaranty program was originally developed to assist veteran’s returning home in the mid-1940’s. The primary objective is to provide housing finance to veterans in areas where private financing is not generally available. As a result, this innovative program has helped veterans and their families purchase their first house with no down payment—delivering housing for tens of millions of servicemembers and their families. Because of this program, the VA has helped veterans establish credit as the basis of borrowing to acquire a home and establish a business.

Tracing its origins to the Great Depression, the Rural Development or RD program has also helped extend housing loans to low-income families and senior citizens in rural parts of the United States. RD has provided loans for single-family homes, apartments, and community facilities. Their work has provided affordable sustainable housing in rural areas: thereby making rural America a better place to live for Native American tribes, farm laborers, the elderly and low-income families.

Today, Ginnie Mae remains the primary financing mechanism for all government-insured or government-guaranteed mortgage loans, including FHA, VA and Rural Development.

In 1970, Ginnie Mae developed and issued the very first MBS, which allowed many loans to be pooled and used as collateral in a security that could be sold in the secondary market. With a guaranty for the timely receipt of principal and interest, MBS can be attractive investments for investors worldwide.

MBS supports housing finance by channeling investment capital from markets all over the globe for use in lending to support neighborhoods across the nation. Ginnie Mae’s role from the beginning has been to provide access to capital for affordable housing. Throughout its existence and particularly during the Great Recession, Ginnie Mae has been profitable, and the value of its MBS has been recognized by investors.

It has weathered all storms without any appropriation from general tax revenue or assistance from the U.S. Treasury. In fact, Ginnie Mae has a surplus every year since the issuance of its first MBS in 1970. Ginnie Mae continues to fulfill its mission of attracting global capital into America’s housing finance markets. Since 1970, it has poured approximately $5 trillion of liquidity into mortgage finance markets, helping to fund millions of units of housing.

It took Ginnie Mae about 40 years, from its inaugural MBS issued in 1970 until 2010 to reach the $1 trillion mark in guarantees outstanding, and then only four additional years to reach the $1.5 trillion mark.

Through forums like this, we value the exchange of information on housing finance and housing markets as we seek enhanced understanding of mortgage markets throughout the world.

As we have seen at this conference, sustainable housing finance is not only cherished in the U.S. and Korea but throughout the Asia-Pacific region.

In closing, we can learn much from success and much more from our failures. Ginnie Mae’s success comes from a successful government guaranty and public/private partnerships. The guaranty provides liquidity to channel global capital into the nation’s housing markets to promote affordable housing.

Today, the guaranty enables more homeowners to access affordable housing finance: providing safety and liquidity to the U.S. housing sector.

Again, I congratulate the conference for its formal recognition of the importance of housing finance and providing access to financing for low- to moderate-income households.

We are pleased to be part of this forum. I am confident that this conference will lead us to a more innovative and secure finance system for our housing markets.

I thank the Ministry for hosting this platform for a productive exchange of policy information. By doing this, we are taking an important step to enable more people —around the world—to access affordable housing finance. Thank you.