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A strong secondary mortgage market strengthens homeownership

The housing market in the U.S. has stabilized from the crisis 10 years ago, in part due to the flexibility, adaptability and stewardship of the secondary market for government-backed home loans, and the solid value that the mortgage-backed securities (MBS) crafted from these loans represent to investors.

Ginnie Mae was a much smaller source of capital to the mortgage market prior to the housing crisis. In 2007 — the year before the housing crash — Ginnie Mae guaranteed $95 billion of MBS and averaged approximately $130 billion annually between 2000 and 2007. Approximately $444 billion of Ginnie Mae MBS were outstanding at the end of 2007.

Over the ensuing 10 years, the volume of Ginnie Mae MBS issued and outstanding climbed sharply, with 2017 issuance reaching $473 billion and the year-end outstanding balance hitting $1.9 trillion. To fuel that growth and remain responsible to our mission of maintaining a liquid and stable source of mortgage finance, for first-time homebuyers and veterans, Ginnie Mae adapted in two important ways.

First, Ginnie Mae seamlessly increased the number of Issuers in the MBS program. Our historic role as a source of mortgage capital in market turmoil worked. When conventional mortgage volume fell significantly, the government-backed mortgage market underpinning Ginnie Mae MBS was there to fill the gaps. Ginnie Mae kept its focus on efficiency and risk management during this growth and today is exploring additional methods to monitor risk to help further ensure the stability of the market, and the availability of home mortgage capital.

The sources of mortgage capital have grown along with Ginnie Mae, and global investors have been important participants. According to research prepared for Ginnie Mae by State Street Global Advisors and the Urban Institute’s Housing Finance Policy Center, foreign ownership of all MBS securities exceeded $830 billion at the end of 2016. (Data for 2017 are not available.) The researchers noted, “We expect that Ginnie Mae securities, with their explicit full-faith and credit guaranty, have greater appeal to foreign investors than Fannie Mae or Freddie Mac securities, which are implicitly guaranteed.”

The investment qualities of Ginnie Mae MBS and the operational excellence of our program that appeal to global investors, as evidenced by our growth, directly benefits homeowners, especially first-time homeowners whose mortgages comprise approximately 70 percent of our securities.

When I and others from Ginnie Mae travel abroad to speak to investors about our securities, invariably the discussion includes an overview of the place homeownership has in our country’s psyche. Survey after survey tells us that homeownership is a goal for more than 90 percent of adults. The strength of those aspirations is well received by investors and fuels Ginnie Mae’s commitment to provide the best MBS product that we can to attract the domestic and global capital necessary to do our part to help keep mortgage rates as affordable as possible.

These investors also want to know how Ginnie Mae is managing risk. The memory of the housing crisis only a decade ago remains at the forefront of many investors’ minds. So in addition to explaining the central role that homeownership has in the psychology and economy of America, we also explain our risk management framework. This framework focuses on having strong Issuers capable of weathering the changes that inevitably will come to the market and helping to ensure that there are lenders continuously in the marketplace able to provide mortgages to the millions of families each year who want to buy a home. Moreover, risk management involves monitoring the mortgage origination behavior of our Issuers to ensure the integrity of the securities. If investors at home and abroad can’t use market-based models to value our securities, they will step back from investing, hurting American homebuyers.

The mortgage finance system is complex, with participants stretching all across the globe, from local lending institutions on Main Street to the investment departments at banks in nearly 200 countries. But for all the system’s complexity, two aspects are simple: Homeownership is ingrained in America’s culture and aspirations, and Ginnie Mae will continue to offer programs that allow for growth and safely manage risk to keep mortgage capital flowing for America’s homeowners.