Can Government Open More Doors for Borrowers?

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1 Can Government Open More Doors for Borrowers? NALHFA Annual Conference Mary K. Kinney, Executive Vice President & Chief Operating Officer April 30, 2015

2 About Ginnie Mae In 1968, Congress established the Government National Mortgage Association, known as Ginnie Mae. Ginnie Mae is a self-sustaining government-owned corporation organized within HUD. Its President is nominated by the President of the United States and confirmed by the United States Senate. Ginnie Mae s mission is to expand affordable housing in America by linking global capital markets to the nation's housing finance markets. Ginnie Mae securities are the only mortgage-backed securities that offer the full faith and credit guaranty of the United States Government. Ginnie Mae s role is to guarantee timely principal and interest payments to investors, and it charges guaranty fees for this commitment. 1

3 Ginnie Mae s Securitization Platform Continues to Evolve to Meet the Challenges of a Changing & Growing Market Ginnie Mae s increased relevance is evidenced in its steady, increased growth and its share of the secondary mortgage market. Ginnie Mae s average issuance in last five years is $382 Billion YTD August volume now has Ginnie Mae at about 32% of total new MBS issue market. $1.5 Trillion $25 Billion 9.1 Million $22 Billion 344 Current Outstanding Ginnie Mae Securities Average MBS Issued Per Month in FY2014 Loans Currently Processed P & I Paid to Investors Monthly Active Issuers 4 Guarantors 2

4 Issue Amount Issue Amount for Insuring Agencies of Ginnie Mae Securities $25,000,000,000 Constituent Fixed Rate Issue Amount January January 2015 $20,000,000,000 $15,000,000,000 $10,000,000,000 FHA VA RHS PIH $5,000,000,000 $0 3

5 Differences in Ginnie Mae & the GSEs Governance Government Guaranty Business Activities Rates and Terms Functions Risk Ginnie Mae Wholly owned Government corporation Explicit guaranty to investors Does not purchase loans, nor does it buy, sell, or issue securities as part of its regular course of business, but approves private lending institutions to issue MBS for which Ginnie Mae provides the guaranty. Trade at a higher price than comparable GSE MBS, thus providing a lower interest rate to borrowers Guaranty and bond administration of MBS only Limited risk to Ginnie Mae. Issuers/Servicer s retain risk. Issuers must have liquidity and capital to advance payments of principal and interest to investors when a loan defaults. Government agencies insurance (e.g., FHA, VA, RD, PIH) repays Issuers for principal (not Ginnie Mae). Also, Issuers are responsible for unreimbursed credit losses for the securities they issue. GSEs Under Government conservatorship since September 2008 but remain publicly traded companies (not on NYSE) Implicit guaranty to investors too big to fail Eligible Collateral Government-backed loans (FHA, VA, RD, PIH) Conventional Loans Purchases loans; buys, sells, and issues securities. Trade at lower prices relative to Ginnie Mae MBS Loan-level guaranty and bond administration of MBS; and management of investment portfolio of whole loans and MBS Significant risk to the GSEs. Borrower Credit Risk, Interest Rate Risk, and Servicer Risk. Both guarantee full repayment of principal to investors when a loan defaults. Both GSEs are responsible for the risk of loss on their securities. 4

6 LOSSES How the Ginnie Mae Model Distributes Risk Last Dollar Loss Ginnie Mae $ Corporate Resources of Issuer/ Servicer Government Agency Credit Enhancement* First Dollar Loss Homeowner Equity Relative Loss Position 5

7 LOSSES How the GSE Model Distributes Risk with High LTV Last Dollar Loss $ Private Credit Enhancement or Mortgage Insurance Fannie Mae/ Freddie Mac First Dollar Loss Homeowner Equity Relative Loss Position *VA covers the first 25% of the credit loss per loan, USDA RHS covers the first 90%, and FHA covers 100%; coverage of foreclosure expenses varies by agency - expenses not covered can be substantial 6

8 Ginnie Mae MBS Outstanding Surges, Post Financial Crisis 42 Years to Reach $1 Trillion then to $1.5 in Five Years $1,600 $1,400 $1,200 $1,000 Historic trend of growth $800 $600 $400 $200 $0 $ (Billions) Unpaid Principal Balance (UPB) 7

9 MBS Gross Issuance Value Ginnie Mae is Meeting or Exceeding the GSEs $90 $80 30-Year and 20-Year Fixed Rate Single-Family MBS Volume share* $70 $60 $50 $40 $30 Ginnie Mae Fannie Mae Freddie Mac $20 $10 $- $ (Billions) *30-Year and 20-Year MBS products include: Fannie Mae: FNM30, FNM30HILTV, FNM30JM, FNM30INITIO, FNM30RELO, FNM30FHA, FNM30PPAYP, FNM20, FNM20HILTV Freddie Mac: FHL30CONV, FHL30RELO, FHLG30INIOJM, FHL30FHA, FHL30, FHLG30MOD, FHLG30FHA, FHLG30RELO, FHLG30PPAYP, FHLG30INITIO, FHLG30HILTV, FHLG30JM, FHLG30, FHLG20, FHLG20JM, FHL20HILTV, FHL20INITIO Ginnie Mae: GNMII30M, GNM30, GNMII30C, GNMII30MJM, GNMIIBD, GNMIIFHASEC, GNMBD, GNM20, GNMII20M, GNMII20C 8

10 Ginnie Mae Model Is Stable but the Market is Dynamic Ginnie Mae guaranteed the first MBS in the world in 1970 and continues to run a single security platform for all 500 approved issuers. We do this via the administration of a mortgage-backed securities (MBS) program collateralized by mortgage loans that are insured by government agencies (FHA, VA, USDA). $1.5 trillion of loans currently serve as collateral in MBS pools guaranteed by Ginnie Mae. Issuers pay Ginnie Mae commitment fees and guarantee fees to use the government wrap. Ginnie Mae has earned profits averaging $900 million the past five fiscal years. 9

11 Composition of Ginnie Mae MBS Single Family Issuance Volume FY2010 FY2014 Depositories Non-Depositories Depositories Non-Depositories 18% 49% 82% 51% FY2010 SF Issuance Volume: $413 B FY2014 SF Issuance Volume: $277 B *Ginnie Mae Issuers are responsible for servicing the securities & the loans backing them; in the case an original Issuer sells servicing to another entity, the new entity takes on all obligations of the original Issuer 10

12 Top 5 Issuer Comparison by Issuance, FY2011 & FY2014 Top 5 Issuers by SF MBS Issuance in FY 2011 Top 5 Issuers by SF MBS Issuance in FY 2014 Rank Issuer Name % of Total Issuance Rank Issuer Name % of Total Issuance 1 WELLS FARGO BANK 34.6% 1 WELLS FARGO BANK 22.4% 2 BANK OF AMERICA 26.4% 2 JP MORGAN CHASE BANK 6.7% 3 JP MORGAN CHASE BANK 7.7% 3 PENNYMAC LOAN SERVICES 5.7% 4 PHH MORTGAGE CORP 3.7% 4 QUICKEN LOANS INC. 4.5% 5 U. S. BANK 3.5% 5 FREEDOM MORTGAGE CORP 4.1% Total Top 5 Issuers: 75.9% Total Top 5 Issuers: 43.4% Ginnie Mae Single Family Issuance: $322.3 billion Ginnie Mae Single Family Issuance: $277.5 billion Red = Issuers that have fallen out of the top 5 since 2011 Green = Issuers that have risen to the top 5 since

13 Differences Between Banks & Non-Banks Prudential Oversight Financial Structure Liquidity Depositories FDIC, OCC, NCUA, Federal Reserve Bank Long-term Equity Based Deposits Non Depositories Ginnie Mae Complex; mono-line business; fragmented sources of capital Significantly more complex than depository institutions: Diverse sources of funding including lines of credit, REITS, private equity 12 12

14 Revised Net Worth & Liquidity Requirements for Single- Family Issuers Single-Family Issuer Minimum Net Worth: Minimum adjusted net worth requirement of $2,500,000 plus 0.20% (20 basis points) of the Issuer's total effective outstanding singlefamily obligations has been increased to $2,500,000 plus 0.35% (35 basis points) of the Issuer's total effective outstanding singlefamily obligations. Single-Family Issuer Minimum Liquidity: Minimum liquid assets requirement of 20% of required net worth has been changed to the greater of $1,000,000 or 0.10% (10 basis points) of the Issuer's outstanding single-family securities. 13

15 US Bank s State & Local Housing Agency Footprint Alaska Montana Minnesota VT South Dakota California Nevada Arizona Colorado Nebraska Kansas Oklahoma Arkansas Illinois Tennessee Ohio Pennsylvania South Carolina Delaware Maryland Washington, D.C. Georgia Hawaii STATE LOCAL Texas Louisiana STATE & LOCAL Source: US Bank 14

16 FHLB Chicago Conduit Issuer Benefits to Small Lenders Community banks, credit unions, and other small banks will be able to access the Ginnie Mae system more easily through the FHLB Chicago (FHLBC) Conduit. The FHLBC Conduit will allow approved smaller institutions to sell loans to the FHLBC, which will aggregate them and issue Ginnie Mae MBS. Participating small lenders will obtain better pricing for loans through the FHLBC Conduit than through the sale of whole loans. Aggregators often require the sale of a loan s servicing as well, but only pay a fraction of its market value smaller lenders will gain more pricing leverage through the Conduit. The FHLBC Conduit will help smaller lenders maintain and develop customer relationships since the Conduit includes the option to retain servicing. 15

17 Summary Non-banks are rapidly transforming the market by playing a critical role in increasing access to mortgage funds for credit-worthy borrowers. These new players provide much-needed competition and innovation to the mortgage marketplace. Due to their structure, they are highly complex financial institutions that have no prudential regulator other than Ginnie Mae. Ginnie Mae s Salary & Expenses appropriations have not kept pace with the growth of non-bank issuance. Ginnie Mae needs the $28.3 million in appropriations proposed by the Administration to hire the staff necessary to best manage risk on behalf of American taxpayers

18 CONTACT INFORMATION Physical Address th Street, SW, Third Floor Washington, DC Mary K. Kinney Mailing Address Executive Vice President 451 7th Street, SW, Room B Washington, DC Phone: Hotline: Facebook /ginniemae.gov