Release 3 Test 1 Current
The landscape in the housing finance market is changing rapidly, forcing those of us in the industry to quickly adjust to continue to ensure we are effectively managing our risk.
One of the most dramatic ways the market has changed is the evolving makeup of Issuers in the marketplace. Since 2008, the percentage of Ginnie Mae Issuers that are non-depositories, or non-banks, has risen from 18% to 50% percent.
At Ginnie Mae, we’ve focused heavily on the interests of our more than 400 Issuers by working to provide them a roadmap for success in their relationship with us. To facilitate this, we will launch our Issuer Operational Performance Profile (IOPP) tool early this year.
The IOPP will give Issuers a way to gauge their effectiveness against our Issuer performance expectations and will provide a way for them to measure their operational and default performance against their peers.
We believe this new tool will help us continue to ensure that a safe, effective, and government-backed channel for the flow of capital for U.S. mortgages exists, reducing risk to the taxpayer and providing much-needed capital for the government.
Similar to a scorecard, the IOPP will provide Issuers a performance report on a series of pre-determined metrics. This will help us ensure our Issuers are performing well, and if they aren’t, it will help them identify areas for improvement.
Through this tool we will achieve improved Issuer management capability which will allow Issuers to better manage their own performance, ultimately helping to improve Ginnie Mae’s performance. In addition, the IOPP will help drive internal consistency in monitoring the business activities across the broader population of Ginnie Mae Issuers and enable us to provide constructive feedback to our Issuers.
To develop this tool, we worked closely with our Issuers for help defining and validating the metrics that would make the IOPP most useful to Ginnie Mae and most helpful to our Issuers. We recognize the importance of being a good partner.
By involving the Issuers in the development of the IOPP, they had a stake in the process and worked with us to ensure we were focused on identifying metrics which Issuers could influence so they could own their performance and outcomes within the IOPP.
While we did rely on Issuers to help us in determining the metrics to be used in the IOPP, we made the final determinations on the weighting of each metric within the IOPP based on its significance and importance to Ginnie Mae.
Within the IOPP each Issuer will be rated against a predefined peer group, based on portfolio unpaid principal balance (UPB). The end result will be two scores for each Issuer – one for operational management and one for delinquency management – both of which will be calculated and reported each month.
The operational management score will be based on key metrics such as failure to report unpaid principal balance, timely reporting of UPB corrections, and a compliance review metric based on findings from Ginnie Mae’s most recently-completed compliance review of the Issuers. The metrics behind the delinquency management score will be based on early payment defaults, 60-90+ day roll rates, workout effectiveness, and percentage of loans in foreclosure.
We believe that once launched, the IOPP will help us in our work with our Issuers so we can continue to provide stability to the housing finance industry and continue to meet our mission of bringing global capital into the housing finance market to provide affordable housing opportunities to millions of Americans.
The 2007 and 2008 financial crisis continues to transform the housing finance industry, forcing many banking institutions to retreat from mortgage lending and servicing. By contrast, the Ginnie Mae mortgage-backed securities (MBS) program has more than doubled in size as government-backed securities were essentially the only means of providing market liquidity. Indeed, Ginnie Mae thrived; beginning in 2007, Ginnie Mae’s issuance by market share jumped from about three percent prior to the crisis to 24 percent in 2009, and has remained around 20 percent between 2010 and today.
Ginnie Mae Issuance by Market Share
Source: Inside Mortgage Finance and FBR Research
However, this housing industry transformation presents challenges to many institutions, including Ginnie Mae. Though some aspects of the transformation are far from clear, one thing has become clear: large commercial banks have retreated from home lending and servicing.
The Retreat of Commercial Banks
Source: Company documents and Inside Mortgage Finance
In the early stages of the financial crisis, many envisioned a future state in which mortgage lending would be heavily regulated, tying it more directly to traditional commercial banking institutions. Instead, banks weighed the costs and benefits of housing finance and determined that housing finance was too risky and that less exposure was the better course for their institutions. Three factors can be considered as primary drivers of the post-crisis retreat of banks:
- The impending imposition of capital standards (via the Basel III standard) that could have the effect of penalizing the ownership of Master Servicing Rights.
- A recognition that the servicing organizations that banks had constructed over time were inadequate to the current era of high numbers of defaulted loans and more onerous regulatory standards. And additionally, an accompanying unwillingness to invest in the re-engineering that would be necessary to change this.
- The incurrence of enormous retroactive costs, in the form of settlements and penalties that have made mortgage servicing appear to be a much more challenging and economically uncertain business line than had been believed to be the case.
This retreat of commercial banks has led to what we are calling an “Era of Transformation” in which non-depository institutions -- many of them relatively new -- and with more complex financial and operational structures, are stepping in to fill the void created by the commercial banks’ retreat. The result is a dramatically different operating environment, an environment the Ginnie Mae program was not designed to support. To continue to meet its mission, Ginnie Mae must take steps to address the utility and relevance of the MBS program in this changing environment.
In our recent white paper, An Era of Transformation, we examine how we will manage and adapt to the rapid, substantial increase in the presence of non-depository institutions. This paper sets forth Ginnie Mae’s approach to effectively managing these new institutions, through the development of five Strategic Views that explain Ginnie Mae’s focus, in terms of both the perspectives that will drive its actions and the specific initiatives that will shape its future.
Strategic View I- Policymakers must give proper weight to the preservation of residential mortgage servicing as an economically viable activity, and mortgage servicing rights (MSRs) as an attractive asset class.
Strategic View II- Ginnie Mae will modify its MBS program to support the evolving residential finance marketplace, including the rise non-depository lenders, and broaden access to its program through non-traditional structures.
Strategic View III- To meet the changing risk profile of this transformation, Ginnie Mae will upgrade its ability to assess and promote the financial and operating capability of its issuers, with a focus on liquidity, MSR valuations, and information-driven operational benchmarks.
Strategic View IV- Ginnie Mae’s strategic efforts will focus on providing for market liquidity, with an emphasis on providing liquidity in servicing–related activities and the marketplace for mortgage servicing rights.
Strategic View V- To preserve the integrity and sound administration of its MBS program, Ginnie Mae will act assertively to maintain program compliance, and – in cases of issuer failure – will seek to relocate MSR portfolios to alternative approved.
By balancing the modification of the MBS program and securitization platform to meet changing conditions and maintaining the key principles and features that have contributed to its long-term success, Ginnie Mae will assure that its contribution to the health of the U.S. housing finance market will continue for many years to come.
This month I want to share with you another important step Ginnie Mae has taken to strengthen and improve our program to support our ongoing mission of providing affordable financing to millions of Americans, the launch of Application Connection, our new online Issuer application tool.
This marks a key milestone for Ginnie Mae as we transition from a paper-based Issuer application process to an online oriented experience.
Application Connection, which launched on September 1, 2014 and is accessed directly through Ginnie Mae’s website, provides an improved application process for prospective Ginnie Mae Issuers. This conversion to an online tool enhances the overall application experience by increasing the efficiency of the process, as well as providing increased transparency from start to finish for the applicants.
To prepare for this transition, Ginnie Mae stopped accepting paper applications on August 1, 2014. This stoppage allowed us to devote our energies and resources to the transition effort to ensure we provided a smooth and problem-free experience on day one, an experience that is easy for applicants to navigate and use. Once the transition was compete, the result was a smoother application process that provides a more efficient and responsive experience for all involved parties, most importantly the applicants.
Users of Application Connection will experience a new level of transparency that is designed to help them better understand our Issuer eligibility criteria. They can track the status of their application in real time once it’s submitted. A prospective Issuer has 30 days to complete their application once they have registered on Application Connection. Once the application is completed, applicants can check the status of the submitted materials, in real time, through the system. Our goal is to provide the highest level of transparency possible.
To ensure a smooth transition for our applicants, we developed two online courses, which we recommend all prospective applicants complete prior to accessing Application Connection. Both courses are available through Ginnie Mae’s Online University and provide applicants all they need to know about Ginnie Mae and the application process. The courses are:
- Ginnie Mae 101, which explains Ginnie Mae’s role, how loans get from the primary to secondary market, eligibility requirements for pooling, the differences between Ginnie Mae and the GSEs, and identifying Issuer responsibilities.
- Applying to Ginnie Mae, which details the Ginnie Mae application process for prospective Issuers.
Application Connection is further evidence of our commitment to not only helping to provide affordable financing to millions of Americans, but also to our commitment of partnering effectively with the private sector for the benefit of not only the nation’s economy, but the global economy as well.
We will always continue to look for ways to make Ginnie Mae a valued and critical business partner and an increasingly important component in the country’s housing finance system and the global economy.
In May our mortgage-backed securities (MBS) portfolio reached $1.5 trillion, a true milestone for us at Ginnie Mae that demonstrates unprecedented expansion.
In less than four years, our MBS portfolio increased by 50 percent, up from $1 trillion in 2010. By comparison, it took 42 years for Ginnie Mae to reach the $1 trillion issuance mark. This is further evidence that Ginnie Mae is successfully implementing its countercyclical role in the secondary market, providing liquidity when needed and playing an increasing role in stabilizing the housing finance industry, which is crucial to the housing recovery as well as the broader economic recovery.
It is important to note this extraordinary growth came at a difficult time, during the housing crisis, and when the overall economy was faltering. When needed, Ginnie Mae provided a safe, effective, government-backed channel for the flow of capital for U.S. mortgages, significantly limiting risks to the taxpayer and providing critical capital for the housing finance system.
Our exceptional performance is simply a reflection of our continued growth and improvement as a corporation overall. We continue to focus on strengthening our business, as we work to modernize and improve our foundation to provide continued stability to the housing finance system. Additionally, we are upgrading our technology and data infrastructure to enhance our securitization platform. We have also launched important program initiatives and enhanced our ability to meet the needs of the secondary market.
And, as always, our commitment to financial discipline will remain strong.
The rapid growth of Ginnie Mae’s portfolio is indicative of the corporation’s consistent financial stability, generating a profit for the U.S. Government for more than 20 consecutive years, and the effectiveness of Ginnie Mae’s unique business model. Ginnie Mae does not originate mortgage loans, nor does it buy or sell securities or loans for investment purposes. The corporation guarantees investors the timely payment of principal and interest on securities backed by loans insured or guaranteed by other Federal Government housing agencies. Ginnie Mae stands in the fourth loss position behind three layers of risk absorption, including borrowers’ equity, Federal Government loan-level mortgage guarantee programs, and the corporate resources of the lender that issues the mortgage-backed security (MBS). This simple, but effective, business model has served Ginnie Mae well for more than 46 years.
The size of our portfolio, coupled with our consistently strong market share, now more than 30 percent, demonstrates the unique value the housing finance system places in Ginnie Mae.
Ginnie Mae has recently engaged in outreach efforts aimed at increasing our influence in the industry, including holding Issuer Roundtable meetings, meeting with industry leaders at the Mortgage Bankers of America’s National Secondary Market Conference, and highlighting the important role Ginnie Mae plays in housing finance at the World Bank’s Sixth Global Housing Finance Conference.
In April we hosted two Issuer Roundtable meetings for the fifth consecutive year. Over the years we have found these meetings to be an increasingly important tool for us and our Issuers. The small group settings provide an opportunity for us to hear honest feedback about the Ginnie Mae program, and to hear the challenges our issuers face on the front lines.
Through the years we’ve tweaked the format of the Issuer Roundtables to make them more impactful and leverage the information provided that allows us to be more supportive of all aspects of our Issuer base.
To improve the meetings, we decided to formalize the process and move away from holding them in conjunction with industry conferences. In addition, we structured the sessions so that one focused on issues facing smaller Issuers and the other on matters impacting larger Issuers.
This year the two sessions were held on April 21 and April 28 in Washington, DC. To further increase the quality and utility of the dialogue, we invited senior representatives of each of the Issuers, as well as housing industry and policy experts, and representatives from various federal agencies, including the Federal Housing Administration and the Consumer Finance Protection Bureau. This gave issuers the forum to ask questions about the environment in Washington, D.C. and what the future may hold.
Key members of Ginnie Mae’s leadership team, including Executive Vice President Mary Kinney and Senior Vice President Michael Drayne, were also present.
MBA National Secondary Market Conference
The Mortgage Bankers Association’s Secondary Market Conference gave us another opportunity to work closely with our Issuers and industry leaders. We had around 80 meetings with lenders and other industry stakeholders.
Speaking on the panel, "An Update from the Agencies," gave me the opportunity to detail our continued focus on efficiency of our business operation and enhancing our securitization platform.
Nicole Jackson, a senior analyst, addressed Ginnie Mae’s enterprise data management strategy during the "Data Quality, Privacy, and Standards" panel. During this panel, Nicole also explained how our data quality program allows us to manage and track quality of data from Issuers and support pooling them for MBS. She touched on the importance of privacy, loan level disclosures, and standards as well.
Global Housing Finance Conference
The Sixth Global Housing Finance Conference, sponsored by the World Bank, was another chance for Ginnie Mae to engage international counterparts in a dialogue about affordable housing finance, in both their countries and the United States.
More than 40 countries from developed and emerging markets participated in the conference. Delegates repeatedly referenced Ginnie Mae’s business model as the aspirational goal for housing finance institutions in their countries. It was humbling to see the credibility and significance that the Ginnie Mae mortgage guarantee model has across the globe.
Many countries are increasingly focusing on new ways to increase access to affordable housing finance. In this journey, international finance and government leaders clearly understand the value and strength of Ginnie Mae’s model as they seek to learn from it and put it into practice with their countries’ housing finance institutions.
During my session at the World Bank’s Housing Finance Conference, I spoke candidly about affordable housing and how Ginnie Mae supports the U.S. housing market through Ginnie Mae’s guarantee of timely payments on mortgage-backed securities for federally insured and guaranteed loans such as the Federal Housing Administration, the Department of Veteran Affairs, and the Department of Agriculture.
I shared information about the wide array of support that Ginnie Mae’s guaranty provides for homeownership, affordable rental housing, assistance living, and home equity conversion mortgages.
All of this outreach helps make Ginnie Mae even more successful by efficiently aligning the interests of Issuers, credit risk insurers, investors, and Ginnie Mae. The result is Ginnie Mae’s continued recognition as a global housing finance leader: providing safety and liquidity, which is at the heart of our guaranty.
Recently I participated in a series of roundtable discussions sponsored by the Federal Home Loan Bank (FHLB) of Pittsburgh, which conducts roundtables throughout the year in Pennsylvania, West Virginia and Delaware. These roundtables are held to increase awareness about critical financial issues for local financial institutions and local policy makers.
The first roundtable was in Morgantown, W.Va., on February 21. I was joined by other experts and policymakers, including U.S. Sen. Joe Manchin of W. Va., a key member of the Senate Committee on Banking, Housing, and Urban Affairs.
I attended another roundtable in Wilmington, Del., on March 31. Joining me was Rep. John Carney, who represents Delaware in the U.S. House of Representatives, and who serves on the Capital Markets and Government Sponsored Enterprises Subcommittee of the House Financial Services Committee.
At both roundtables I gave a primer on Ginnie Mae’s business model and the important role we play in the secondary mortgage market and in affordable housing efforts. This was a key opportunity for me to lay out in detail Ginnie Mae’s impact on both the national and global economies to local and national leaders from West Virginia, Delaware and the FHLB of Pittsburgh. It was particularly important that Sen. Manchin and Rep. Carney participated, as both are influential voices in Washington, D.C., on issues of importance to Ginnie Mae.
I described our mortgage-backed securities (MBS) and how they are the only MBS backed by the full faith and credit of the U.S. government; I was also able to explain how we have no exposure to credit risk, the significance of our MBS guaranteed volume of $1.5 trillion and our monthly issuance rates. In addition, I discussed how our securitization process divides risk among credit enhancers and Issuers and investors.
These roundtables are extremely important to Ginnie Mae’s future as Congress will eventually take up legislation to address the government-sponsored enterprises. It seems likely that whatever legislation Congress passes will impact Ginnie Mae. By participating in these roundtables, which we hope will be conducted throughout the year by FHLBs across the country, we can describe for policymakers and leaders the importance of our role and ultimately have a voice in our future.
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