Former president of Ginnie Mae: Agency should split from HUD

The Government National Mortgage Association (Ginnie Mae) has undergone tremendous growth over the past decade, pushing its way into the same conversation as the Government Sponsored Enterprises.

Many credit Ginnie Mae for playing a crucial rule stabilizing mortgage markets during the subprime and foreclosure crisis after 2008.  Last year saw the institution set records for issuance, and the sky seems to be the limit. 

With its explicit government guaranty, Ginnie Mae has helped the FHA and the VA loan programs to become staples to first-time homebuyers and helped keep the country’s mortgage finance engine moving during some of the economy’s darkest hours.

Part of the reason for Ginnie’s recent success has been its willingness and ability (because of its single securitization platform) to allow a wide range of non-depository mortgage lenders to serve as issuers.

This has accommodated a growing trend in the mortgage industry (the growth of nonbank lenders and the retreat of large banks from government-backed mortgage loans).  It also provides a significant amount of diversification, mitigating a substantial amount of the risk inherent to such an operation.

If Ginnie Mae were a privately held or publically traded corporation, it would likely be seeking massive capital investments today in preparation for a new level of growth.  The industry’s top talent would be flocking to Ginnie, clamoring to be a part of an industry success story that has not yet reached its apex.

The model is working. The business is growing and more growth seems to be on the way.  Yet, in part because Ginnie Mae is actually a wholly owned government corporation within the Department of Housing and Urban Development, that is not entirely the case.  

This is why it may well be time to consider ways to separate Ginnie Mae from HUD.  

We are artificially constraining a success story which has played a critical role in helping the mortgage industry rebound from the bleak days after the subprime meltdown, and which could be a driving force in taking the American real estate finance market to the next level.

Ginnie Mae has recently made a compelling case for a greater share of HUD’s budget. In particular, it is argued that the institution, which now has over 400 issuers, lacks adequate staffing to implement greater vetting, oversight and reporting processes over the burgeoning number of new issuers, many of whom are non-bank entities.  

The lack of adequate staffing has raised questions about Ginnie’s ability to oversee its servicers or properly analyze the risk associated with onboarding a new issuer.  Currently, there is no true budgetary consideration for risk, and HUD has shown little inclination to change that.  

In short, what would be considered a blue-chip institution in the private sector is unable to plot its own budgetary course, which is a major impediment to growth and stability.

Ginnie Mae’s position within HUD has also hampered its recruiting efforts. Because Ginnie is unable to compensate employees at the market rate, it is consigned instead to the federal employee pay structure. 

As a result, attracting the best professionals can be a real challenge.  Ginnie Mae—and the mortgage industry—will need an influx of the best professional talent if it wishes to maintain its current course of growth.

Twenty years ago, Ginnie Mae was almost an afterthought in the secondary market.  It operated in the shadows of its larger GSE cousins.

Today, Ginnie is a success story.  It has outgrown its role as a specialist supporting HUD and, instead, has ballooned to become a core industry driver.  

If anything, Ginnie has taken a position similar (if not identical) to that of the GSEs, making the Federal Housing Finance Agency a better fit.

It is time for us to revisit its external limitations and enable the company to reach the enticing possibilities its business model creates.

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