It is no surprise to anyone that the United States housing industry has experienced significant change and turmoil these past five years. The new landscape has strongly influenced Americans’ perception of the country’s housing market. At times, this view even overshadows the fact that many countries view the U.S. housing market as the gold standard to be emulated, particularly in regards to its financing mechanisms. Ginnie Mae is no exception. 

 

In fact, countries regularly express interest in the Ginnie Mae business model, citing its conservative approach to risk management as an industry best practice. Over the last few months, Ginnie Mae has met with representatives from Denmark, Korea, the Philippines, China, Taiwan and the United Kingdom to discuss how a similar secondary market institution could be established in these countries. This interest is a testament to the international finance community’s acute awareness of the Ginnie Mae program and its successful contributions to the markets through secure investments.

 

For example, Russia is currently exploring ways to develop its own mortgage-backed securities (MBS)-based secondary market and recently expressed interest in learning more about Ginnie Mae and its unique business model. Last month, leaders from Russia’s Agency for Home Mortgage Lending (AHML) traveled to Washington, D.C. to meet with Ginnie Mae’s president and senior executives to discuss how a conservative business model, like Ginnie Mae’s, could be effectively adopted and used in Russia to create more affordable housing.

The country’s interest stems from President Vladmir Putin’s desire to develop and strengthen Russian living standards. As part of this effort, Putin pledged to lower mortgage interest rates and provide financial aid totaling $8.3 billion (RUB 250 billion) to commercial banks to facilitate mortgage lending.  In addition, this effort aims to build Russia’s rental market to create new housing options for the Russian people.

 

Russia’s focus on improving single-family housing standards, combined with its commitment to increase available options for multifamily housing, creates an incentive to establish a conservative entity to finance these efforts. By leveraging the Ginnie Mae MBS structure, Russia would attract larger amounts of international capital into its local housing markets.

 

The Russian delegation also found other elements of Ginnie Mae’s business model appealing, particularly the minimization of taxpayers’ exposure to the risks associated with the secondary mortgage market. Specifically, they appreciated that lenders have skin in the game. Because the security is the financial obligation of the lender, when borrowers don’t perform, lenders must make up the losses. This position ensures that lenders are invested in the success of the product and committed to risk management.  Also, since Ginnie Mae is a wholly-owned government corporation, they valued the fact that this status helps protect taxpayers from the familiar problem of private gain and socialized losses.

 

While in the U.S., the Russian delegation also met other U.S. officials including HUD Secretary Shaun Donovan; Mike Stegman, senior advisor to the Secretary of Housing Policy; and Jim Parrot, senior housing advisor at the National Economic Council. Conversations with these officials focused on the recovery underway in the U.S. housing market.

 

Many in the international finance community understand the important role that Ginnie Mae has played in stabilizing the U.S. housing market and the economy. As an industry leader, Ginnie Mae remains committed to a financially-sound business model – one that not only helps to steady the U.S. housing market, but also has a significant impact on the development of other housing markets worldwide. We are eager to work closely with Russia and other countries around the world as they look to model the U.S. housing market within their own countries.

 

Terry Carr