Community banks – which may have been sitting on the sidelines, waiting for the housing crisis to abate – have the opportunity to help revitalize the mortgage market by working with the Government National Mortgage Association.
Ginnie Mae, a distant relation to Fannie Mae and Freddie Mac is doing its part to help ensure a steady stream of money continues flowing in to support the beleaguered housing market.
With the private sector in retreat, the Government National Mortgage Association in 2011 issued a total of $263.3 billion in single-family, mortgage-backed securities, passing Freddie Mac to become the second-largest funder of home loans.
Within the next 12 months, Ginnie Mae expects to exceed Freddie Mac in securities outstanding, according to President Theodore Tozer.
Unlike Fannie and Freddie, Ginnie Mae doesn’t purchase mortgages. Private lenders approved by Ginnie Mae issue mortgage-backed securities, for which Ginnie Mae provides a guarantee.
Ginnie Mae raises capital from investors in the global credit markets, who purchase federal housing loans in the form of Ginnie Mae securities. Over the past three years, Ginnie Mae has raised $4.3 trillion dollars abroad, pumping money back into the U.S. economy and helping give lenders consistent access to capital.
During that same period, the government-owned agency has raised funds for 4.8 million single-family home purchases and 535,000 multi-family units.
The agency itself is fiscally sound, posting record earnings of $1.2 billion in fiscal 2011, nearly double the previous fiscal year’s $541.5 million in earnings.
The problem is that few FHA/VA-approved lenders are issuing GNMA securities. Instead, lured by attractive service-premiums, lenders are selling their loans to large aggregators – mainly Bank of America, JP Morgan Chase and Wells Fargo & Co.
Tozer, who has been GNMA president for a year and a half, has been on the road recently, urging community banks to work directly with Ginnie Mae and issue the securities themselves, while retaining the service rights.
Otherwise, a few megabanks will continue to control both the GNMA issuance and servicing market. And the risk is that if one of the Big Three fails, GNMA could be forced to suddenly pull servicing portfolios.
To encourage smaller banks to participate in the secondary market, the agency now offers daily settlements for multiple issuer pools. The change is aimed at making it easier for smaller institutions to pool their loans with as much speed and flexibility as possible. In addition, the agency lowered the minimum amount and number of loans required to qualify for pooling.
Ginnie Mae is working on an active basis with trade associations representing community banks to develop ways to make the benefits of mortgage-backed securities, rather than whole loan, pricing available to community banks. If banks can deliver mortgage-backed securities directly as issuers or to an aggregator that has an incentive to provide liquidity to community banks – instead of just generating profit for itself – both Ginnie Mae and the community banks will benefit.
Fannie and Freddie tarnished the mortgage-backed securities concept with their exotic products and poor credit risks. But with the proper safeguards, the government, private market and community lenders can work together to revitalize the housing market and economy.
The more players – of all sizes – there are in the mortgage market, the better. A larger number of issuers and servicers means more options for consumers and a stronger market overall.
It’s worth giving Ginnie a try.
