; 6-21 ASF_Annual_Conference_2011 _2_
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6-21 ASF_Annual_Conference_2011 _2_


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									Government Guaranteed

                        Ginnie Mae Update

                        Ted Tozer, President

   Economic Outlook: Consumer

• Factors affecting consumer willingness to
  – Increases in food and energy prices, declining
    home values, and unemployment serve as a drag
    on spending
  – Cuts in payroll taxes and reduced debt can
    support some increased spending

        Economic Outlook: Business
•   Job growth has slowed: 54,000 new jobs
    added in May versus previous 3 month
    average of 220,000
    •   Private sector added 83,000
•   Capital spending on equipment and software
    continues to expand
•   Businesses have the ability to access capital at
    incredibly low interest rates

     Economic Outlook: Housing
• Housing prices are down annually slightly more than
  5.1% relative to Q1 2010
   – DC is the only market showing monthly and annual
     increase in prices
• According to NAR Chief Economist Albert Yun,
  despite month-to-month volatility, home prices
  have been remarkably stable in the range of
  $160,000 to $170,000 for the past three years

     Economic Outlook: Housing
• Housing inventory of 3.87 million existing
  homes for sale
  – 9.2 month supply
• Single family home vacancy rate of 2.2%
  – Highest rate was 2.6% Q1 2008
• 31% of existing home sales in April were cash
  only transactions

    State of the Economy: 2009
• Experiencing the worst economic and housing
  crisis since the Great Depression
• As of Jan. 2009:
  – 30 straight months of housing price declines
  – $6 trillion in lost home equity
  – Midpoint of 22 consecutive months of job loss
     • 753,000 jobs lost per month on average

Administration Stabilization Efforts
• Federal Reserve and U.S. Treasury purchased $1.4
  trillion in agency MBS, helping to keep interest rates
  at record low levels
• Supported Fannie Mae and Freddie Mac, providing
  access to credit markets
• Supported the first-time home-buyer tax credit
• 10.6 million homeowners have refinanced since
  April 1, 2009

Administration Stabilization Efforts
• Mortgage aide extended to nearly 5 million
  Americans between April 2009 and March
  – 2.3 million proprietary
  – 1.6 million HAMP
  – 849,300 FHA loss mitigation

Administration Stabilization Efforts
• Nearly 700,000 permanent HAMP
  – In April alone, 29,000 permanent modifications,
    with average payment reduction of 37%
• Nearly $25 billion in homeowner savings from
  reduced mortgage payments (all modifications
  and refinances)

Administration Stabilization Efforts
• FHA, VA, and RD have played a crucial role in
• FHA market share has been historically high
• During crisis, FHA, VA, and the Federal farm
  programs insured 81% of loans to African
  Americans and 73% to Hispanics

Administration Stabilization Efforts

• How is HUD, FHA, VA, and RD able to support

                 Ginnie Mae

• Facilitating the flow of private capital into
  government-insured products
• Exposing taxpayers to minimal risk

                Ginnie Mae
• Wholly-owned government corporation within
  Housing and Urban Development
• Congress, recognizing the need to create capital to
  finance FHA loans, established Fannie Mae in
• In 1968, Fannie Mae was charged with supporting
  the secondary market for conventional loans
• In 1968, Ginnie Mae was established to support
  the secondary market for government loans

       What Ginnie Mae Does
• Raises capital for FHA and other
  government-insured loans
  – Created and issued first ever MBS
• Guarantees Issuer (servicer) specific
  – Ginnie Mae guarantees that a servicer will
    meet its obligations regardless of the cost or
    resources needed to do so

            Ginnie Mae’s Impact
Since the credit crisis began, Ginnie Mae has:
•   Pumped about $1.1 trillion in liquidity into the U.S.
    housing mortgage finance market
    –   This financed more than 4.1 million single-family homes and
        415,000 multifamily properties
    –   Financed or refinanced more than 900 nursing homes,
        assisted living facilities, and hospitals – helping many
        communities keep much needed health care options for the
        elderly and infirm during this crisis
•   In July 2010, Ginnie Mae’s portfolio surpassed $1 trillion in
    outstanding RPB for the first time in history
•   Overall, Ginnie Mae’s portfolio has financed 9.7 million
    single-family homes and apartment units

Secondary Market for Government
     and Conventional Loans

Borrowers              Lenders               U.S. Government                                                             Ginnie Mae                        Investors
Seek a loan     Originate loans under              FHA                                                               Guarantees investors           Purchase security and
              guidelines of federal credit          VA                                                                timely payment of              receive monthly pass
                                                                                According to Ginnie Mae
                      programs                     PIH                                                             principal and interest on       through of principal and
                                                                             guidelines, pool loans and create
                                                    RD                                                                     security                interest from borrowers
                                                                               a mortgage-backed security

Borrowers                 Lenders                          Servicers                                                                                   Investors
Seek a loan         Originate loans under            Collect principal and                         Fannie Mae    Freddie Mac                    Purchase security and
                   Fannie Mae and Freddie         interest from homeowners                                                                       receive monthly pass
                       Mac guidelines                                                                                                          through of principal and
                                                                                                                                               interest from borrowers

                   Differences Between
                   Ginnie Mae and GSEs
                 Ginnie Mae                                   Fannie Mae* and Freddie Mac*

Wholly-Owned Government Corporation               Shareholder-Owned, Publicly-Traded
Explicit Guaranty to Investors                    Implicit Guaranty to Lenders and Investors
Government Insured Loans (FHA, VA, PIH, RD)       Conventional Loans

Trade Higher, Low Interest Rate to Borrowers

MBS Only                                          MBS and Whole Loan Portfolio

Issuer/Servicer Risk                              Borrower Credit Risk, Interest Rate Risk & Servicer Risk

Total Outstanding Portfolio                       Total Outstanding Portfolio
Ginnie Mae – $1.15 Trillion                       **Fannie Mae – $2.8 trillion
                                                  **Freddie Mac – $1.8 trillion

Less Than 100 Employees                           Greater Than 5,000 Employees Each

                          *In conservatorship September 2008 **March 2011
    Ginnie Mae Risk Structure
• Before Ginnie Mae’s guaranty is at risk,
  three levels of protection must be
  – Homeowner equity
  – The insurance provided by the government
    agency that insured the loans
  – The corporate resources of the lender that
    issued the security
• Ginnie Mae is in the fourth and last loss
  position                                       18
                       Ginnie Mae Risk
       Borrowers              Issuer             Ginnie Mae        Insuring Agency
• Borrowers          • Issuer passes      • When the loan is • Issuer may file
  default on FHA,      through P&I          repurchased, the    claim with
  VA, or RD loans.     payments on          Ginnie Mae          insuring agency.
                       delinquent loans     guaranty is no    • In effect, the
                       to Ginnie Mae        longer in place.    Issuer must
                       until a borrower   • Because the loan    manage the
                       is 90 days late.     is no longer in a   credit risk with
                     • Issuer may           Ginnie Mae          the insuring
                       repurchase loan      security, Ginnie    agency.
                       at 91 days late.     Mae has no        • Ginnie Mae is
                       Issuer must          further financial   completely
                       maintain             responsibility.     removed from
                       delinquency                              Issuer credit risk
                       thresholds.                              management.

Ginnie Mae Risk

                  Risk: Ginnie Mae Versus GSEs
                                                   GSE*                         Ginnie Mae (VA)                    Ginnie Mae (FHA)

      Purchase Price of
                                                         $300,000                                $300,000                     $300,000

      Mortgage Amount**                                  $240,000                                $300,000                     $289,500

      Net Proceeds After
                                                         $200,000                                $200,000                     $200,000
      Servicing Expenses

      Loss Severity                                       $40,000                                $100,000                      $89,500

      Allocation of Loss                                        GSE                        VA and Issuer                 FHA and Issuer

       Guaranteeing
      Entities (GSE, FHA,                                 $40,000                                  $75,000                     $80,500
      and VA)

       Issuer                                                    $0                          $25,000***                    $9,000****

     *Assumes GSE guarantees loan
     **Amount financed is the maximum allowable
     ***Additional amounts can vary and depend on the foreclosure timeline, market conditions, and other factors
21   ****Based on a survey of Issuers
                     Financial Highlights
   FY   Issuance         RPB           Loans         Active     Total Revenues   Net Income
        (billions)     (billions)                   Issuers       (thousands)    (thousands)
2010           $413          $1,046     6,951,562         219       $1,011,900       $541,500

2009           $419             $826    5,726,892         207        $657,300        $509,600

2008           $221             $577    4,480,987         184       $1,015,400       $906,200

2007            $85             $428    3,747,547         189        $791,300        $738,300

2006            $82             $410    3,786,888         213        $849,300        $789,300

2005            $90             $377    3,999,720         240        $786,500        $705,200

                       GSE Reform
•   Option One:
    – Privatized system of housing finance with the government
        insurance role limited to FHA, USDA, and VA assistance for
        narrowly targeted groups of borrowers
•   Option Two:
    – Privatized system of housing finance with assistance from FHA,
        USDA, and VA for narrowly targeted groups of borrowers and a
        guarantee mechanism to scale up during times of crisis
•   Option Three:
    – A system of housing finance with FHA, USDA, and VA assistance
        for low- and moderate-income borrowers and government-
        backed catastrophic reinsurance behind significant private capital

              GSE Reform
• Housing that is not sustainable—that is
  putting people in homes they cannot
  afford—works out badly for everyone:
  borrowers, lenders, investors, the markets,
  and taxpayers

     GSE Reform: Accountability
• Lenders need skin in the game
• Borrowers must be financially literate
  – Understand the product they purchase
• Investors must perform due diligence to price
  – Data transparency required
• Regulators must consistently apply the rules
• Rating agencies must reliably assess bonds

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