Feature: Ted Tozer

Written by Jessica Guerin, as originally published in The Reverse Review.

Ginnie Mae President Ted Tozer has been leading the only securitization platform for HECMs in the world for five years. In this time, Tozer has worked hard to transform the organization, loosening the standard bureaucratic red tape and taking strides to create a customer-centric environment in the hopes of bringing more issuers—and more capital—into the program.

While issuance for HECM mortgage-backed securities took a downturn in 2014, Tozer remains optimistic about the program’s future. As Ginnie Mae’s new policies encourage participant success and the HECM program regains its footing following recent regulatory changes, Tozer says the future of HMBS looks bright.

The Government National Mortgage Association

As a federally owned corporation operating within HUD, Ginnie Mae (once known as the Government National Mortgage Association—its name is derived from the abbreviation GNMA) is designed to channel funds into the U.S. housing market by guaranteeing bonds sold by mortgage lenders to allow them to obtain the most advantageous funds in the capital market. By ensuring liquidity, Ginnie Mae gives lenders the ability to continue to issue new mortgage loans to consumers at the most advantageous terms possible.

Ginnie Mae issued its first HECM-backed security in 2007, back when Fannie Mae dominated the landscape. Just three years later, the agency achieved a record high with $11 billion guarantees of MBS and Fannie exited the space to focus on other channels.

While the agency hasn’t achieved such remarkable highs in recent years, Tozer says he is doing all he can to help advance its programs. He says that when he joined Ginnie in 2010, his main goal was to create an environment that produced solutions for the lenders and investors with whom they do business.

“I didn’t want it to be a typical government agency. My goal was to try to get the people at Ginnie Mae to take the tack that at the end of the day, people should [evaluate] how we are doing from a customer-service perspective,” Tozer says. “They shouldn’t view us as a government agency, but as a partner. They should put us on the same level as a private-sector company.”

Instituting Change

Tozer says, ultimately, the goal is to bring in more lenders. Upon joining the agency, one of the first things he did was expand its multiple lender programs, changing the participant requirements from three loans per pool to just one.

“We tried to reduce the barriers for small lenders who wanted to do business with us by getting it down to that one loan for full capacity, and that extended our base,” he says.

“Since I got here, my goal has been to try to make sure that any organization that could be a success in our program had the opportunity to be an issuer and not have to go through a third party, to have direct access to the capital market themselves. And it’s worked.”

Tozer says that the agency has nearly doubled the amount of issuers it was doing business with. “Just on the 8

single-family side, when I got here, the top 10 issuers made up approximately 85 percent of our business. In 2014, the top 10 only did about 55 percent of our business,” he says. “So we have seriously deconsolidated our issuer base by not only doing things like the single loan per pool to encourage small lenders to get involved, but also by working with the lenders that do business with us [to ensure] they have the expertise to be able to succeed.”

Tozer says working with smaller lenders that don’t have access to the liquidity of larger banks did give rise to a unique set of challenges. To ensure success, the agency instituted a policy that would allow issuers to pledge their Ginnie Mae servicing as collateral with commercial banks to get a line of credit.

“We know that it is challenging to survive in all economic cycles in our industry, so we thought it important to support the pledge of servicing, since servicing rights is mortgage brokers’ largest single asset,” Tozer says, calling the move “monumental” because it encouraged Fannie and Freddie to “seriously start taking a similar path with their servicers about letting them pledge their servicing.”

Tozer says initiatives like that one have helped propel the agency forward. “We want Ginnie Mae to be a leader in this industry instead of a follower.”

Work to Be Done

But Tozer says his work is far from over, and that Ginnie Mae has lots of goals on the agenda for 2015 and beyond. Moving forward, he says he’d like the agency to work more closely with issuers in an advisory capacity to help prevent those struggling from defaulting.

“I want to get to the point where we have an infrastructure, the reporting and staffing in place, where we can see when an issuer is starting to have some challenges, and we can get in front of it to help navigate those challenges, so that at the end of the day, we never have to shut down another issuer,” he says. “That’s what we are looking forward to: getting to this point where we can really be proactive with our customers.”

Ginnie Mae has also announced a number of official goals for the year ahead. At its annual summit in September, it released a list of five new initiatives designed to stimulate nationwide mortgage lending. Among them is an increase in issuer net worth and liquidity requirements.

“We’ve been working with a number of commercial lenders, reverse mortgage lenders, to have the funding to buy the loans out at 98 percent, and that’s what we’re worried about,” Tozer says. “That’s the biggest challenge for the reverse mortgage issuer.”

Tozer says Ginnie’s old requirements were outdated because they revolved around net worth instead of liquidity. “The key is liquidity. Every issuer we’ve had to shut down since I came here five years ago has been due to liquidity. None of them have been insolvent. They had plenty of capital, but they didn’t have the cash to make the required bond payments.”

Tozer says the policy change is intended to ensure that those who are in the program can succeed in the program. “It was an opportunity for us for the first time to really be realistic about what it takes in terms of financial resources to be successful in our program, because at the end of the day, I want everyone who is in the program—who wants to be in the program—to succeed in the program.”

HMBS Success

In recent years, HMBS volume overall has taken a significant downturn. According to New View Advisors, 2014 saw the lowest issuance since 2008, when Ginnie Mae had just entered the space. Issuers sold $6.6 billion in new pools last year, a 31 percent drop from the year before. New View did point out, however, that 2014 saw the most pools ever issued, a total of 1,026—three more than the previous year’s record.

HMBS ChardRecently, Ginnie Mae demonstrated its vigilance in protecting the interests of those involved in its HMBS program when it placed a ban on fixed-rate, partial-draw products from its pools.

In the past year, a handful of lenders introduced a loan option that offered borrowers a fixed rate on proceeds one year after the loan’s initial disbursement following the release of HECM policy changes in the fall of 2013. Not long after, Ginnie Mae reacted, announcing it would not allow fixed-rate variations in its pools because it deemed them to be too high-risk.

“My concern when we started doing a partial-draw product on a fixed rate was the substantial interest-rate risk on the issuers. I want to make sure the issuers are around for the long haul, and make sure the program is around for the long haul, and I just felt taking on the interest-rate risk was contrary to the long-term interests of all the participants in the program. So that’s why we moved so quickly,” he says. “We just felt that this may be a positive in the short run, but in the long run, if we allowed it, it would have come back to haunt the industry and the borrowers themselves.”

Tozer also says there is more work to be done to advance HMBS, namely resolving the true sale issue. “I have been really disappointed that we have not been able to find a way to enable the HMBS issuers to get sale treatment. Eventually we’ll get it resolved; it’s just so difficult for us to maintain the integrity of our program and do that.” He says Ginnie Mae will continue to take ideas to the industry and encourage conversation among all participants in order to find a solution.

Tozer’s confidence in the program is unwavering. “We’re hoping that once the industry adjusts to FHA’s changes and any uncertainty [is resolved], HMBS production will pick back up. We think that with the baby boomers retiring, the ability to tap into your equity is something that is going to be needed.”

He calls the recent wave of regulatory change a step in the right direction. “I think these are things they probably should have put in the initial HECM when they rolled it out years ago. A senior citizen needs to be able to keep their house in repair, needs to be able to pay their taxes and insurance, and to make the assumption that that would naturally happen was probably too rosy,” he says. “We’re getting to the point now where we’re seeing the HECM as really sustainable, and we’ve put the terms in place to make sure that it’s sustainable for FHA as well as for the borrower.”

He admits that it may take some time for the industry to rebound in the wake of policy change. “These changes were relatively dramatic in a short period of time, though they were very much needed. We think the industry needs to work through those,” he says, “but the long-term perspective is pretty positive for HMBS.”

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