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​Stakeholder Letters

Rebuilding America’s Housing Finance System
Published Date: 9/10/2013

As the housing finance reform debate continues and begins to show movement toward consensus, I believe it is appropriate that I move into the author’s chair for this Ginnie Mae’s monthly email communication. I am also taking over the pen because Terry Carr, formerly Ginnie Mae’s Director of Communications & Congressional Relations and the past author of this email, has transitioned into a new role advising FHA Commissioner and Assistant Secretary for Housing, Carol Galante.

Throughout the summer, I had the privilege to meet one-on-one with investors, Issuers, trade associations, realtors and others across the industry. I was also invited to present at several larger scale events, including the Housing Renaissance and the National Association of Realtors’ Broker Conference. The common ‘ask’ among all of these forums was the request to inform and educate participants about the Ginnie Mae model and the role of government in housing finance.

With Congress back in session, the activity in Washington, D.C. surrounding the housing finance reform debate is heating up. There are many proposals and ideas under review. We are seeing the housing market come alive once again and we need to build on that momentum. Last month, President Obama moved the agenda another step forward by announcing the Administration’s plan for A Better Foundation for Middle Class Homeownership.

The President’s plan recognizes homeownership as a symbol of responsibility and a source of security. The plan intends to offer a better bargain for responsible homeowners and to make mortgages safe and simple. Further, it acknowledges that the current system is unsustainable, as more than 80 percent of mortgages today are guaranteed by the U.S. government.

Guided by the philosophy that we must build a housing finance system that works for responsible middle class families, the Administration has laid out a four-pronged approach for housing finance reform.

This reform:

• puts private capital at the center of the mortgage finance system;

• protects the 30-year and other safe mortgages;

• ends Fannie Mae’s and Freddie Mac’s current business model; and

• supports affordability and broad access to homeownership.

Though private capital is crucial, it is important that we also recognize the importance of the government’s role in ensuring broad access to homeownership and the 30-year, fixed-rate mortgage. For more than 30 years, the U.S. government has played a significant role in the mortgage market, as illustrated by the chart below:

 

exposure_to_residential_mortgages_outstanding.jpg

Source:  Federal Reserve

 

I noted in a special message in March that it is important for the industry to agree on government involvement and to what degree it is necessary. The future model must align with the economic interests of all those involved in the process. In addition, it must provide a well-functioning To-Be-Announced (TBA) market. Created to support Ginnie Mae securitization and financing of government insured loans, an effective TBA market allows investors to buy large pools of loans at potential trades of $50-100 million each. This investor commitment enables borrowers to lock-in an interest rate prior to loan closing. It also provides broad and stable capital availability for potential homebuyers across the country. Additionally, all TBA-eligible securities have a government guaranty.

Determining how best to strike the optimal balance between government involvement and minimizing risk to the American taxpayer is essential as we move closer to a solution. Ginnie Mae’s business model demonstrates that the strength of its full faith and credit guaranty, when used prudently, can support a healthy, sustainable housing finance system. Key to the success of our unique model is that Ginnie Mae lenders have “skin in the game.” That means that U.S. taxpayers are protected from credit risk because the lenders remain financially responsible for the securities they issue.

When the President outlined his plan, he said that we need to put a system in place that is stable and steady. And, we must lay a “rock-solid foundation to make sure the kind of crisis we went through never happens again.” Ginnie Mae remains steadfast in helping to rebuild America’s housing finance system and is committed to doing its part.