As I observe Housing and Urban Development (HUD) Secretary Fudge staffing out her management teams, a large hole remains unfilled. In fact, this hole has not been filled permanently in almost five years. The position is an important one, a fact that I know firsthand as the last permanent appointment to the role of president of Ginnie Mae.
Historically, many felt that delaying the appointment of the Ginnie Mae president carried little risk. This could not be farther from the truth given the importance of Ginnie Mae in the housing finance system.
The most salient Ginnie Mae responsibility is managing the government guarantee of mortgage-backed securities (MBS) that lenders issue to fund their origination of Federal Housing Administration (FHA), Veteran Affairs (VA), and Rural Development insured mortgages. Ginnie Mae currently oversees guarantees totaling around $2.1 trillion of privately issued MBS.
To put this volume in perspective, at the beginning of 2009, the total outstanding Ginnie Mae guarantees totaled approximately $500 billion in MBS. Ginnie Mae is responsible for assuring that lenders can fulfill their payment obligations to government guaranteed MBS owners. Ginnie Mae ensures the timely payment of all due amounts on government guaranteed MBS if the MBS issuer defaults on its obligation. Ginnie Mae’s role is very similar to the role the FDIC plays in the banking industry.
For the past 50 years, Ginnie Mas also administers the common MBS that Ginnie Mae issuers use to raise funds in the capital market. This program has been so successful, MBS investors call the securities Ginnie Mae MBS because the MBS has become homogenous among issuers. For example, capital markets participants do not refer to a Chase-issued government MBS as a Chase MBS – they refer to these securities as Ginnie Mae MBS.
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The homogenization of Ginnie Mae MBS requires Ginnie Mae to ensure that all issuers service their loans to optimize the Ginnie Mae MBS value. This differentiates Ginnie Mae from FDIC. While both organizations guarantee obligations of institutions, Ginnie Mae goes further by commoditizing the funding of government insured loans through a common security. This levels the playing field for the smallest government lender who can now compete with the largest government lender since their funding will carry the same cost.
Ginnie Mae created the first common securitization platform more than four decades ago to administer the common MBS. This platform allows MBS investors to receive not only timely monthly principal and interest payments, but also the timely and accurate monthly loan level data they need to manage their Ginnie Mae MBS portfolios.
Ginnie Mae understands that receipt by investors of such data is critical to maximizing the value of Ginnie Mae MBS. Since all issuers use a common MBS to fund FHA, VA, and RD originations, any impairment of Ginnie Mae MBS value would raise the cost of such funding, which would typically be passed on to homebuyers in the form of higher government mortgage interest rates.
Ginnie Mae risks the proper fulfillment of its roles and obligations within the larger housing finance landscape without a properly confirmed president. On top of that, the right Ginnie Mae president must be technically sound and not merely a political appointee, proficient and comfortable in the worlds of capital markets and mortgage origination.
An important event occurred in the past few weeks that clearly demonstrate the importance of this need.
On July 12, Ginnie Mae issued a Request for Input to obtain feedback on changes to its issuer capital and liquidity requirements. From my seven-year tenure as confirmed Ginnie Mae president and previous 25 years as a mortgage banker, I understand the unique challenges that the balance sheet structure of independent mortgage bankers’ — which make up almost 90% of current Ginnie Mae issuance — creates for Ginnie Mae.
The RFI could have given more background information on the risks that Ginnie Mae was trying to minimize and how the proposed changes would address these risks. As Ginnie Mae president, I met regularly with the Secretary of HUD. Career HUD staff historically have had limited access to the Secretary. A confirmed and proficient Ginnie Mae president could have socialized and “presold” the proposed changes to the Secretary. This would have made the RFI issuance, delivery, process, and reception much smoother.
A technically strong president would use their mortgage lending background to help shape not only the details but also the message that the highly competent and professional Ginnie Mae staff wanted to convey and reduce the initial knee-jerk industry reaction to potentially significant balance sheet changes.
A well-qualified Ginnie Mae president would be an important resource for Secretary Fudge and would complete the base of experienced advisors that the Secretary needs to understand the housing finance system from the perspective of homebuyers, mortgage originators, and capital markets participants.
I recommend that the Biden administration — if it has not done so already — promptly reach out to respected members of the mortgage lending and capital markets communities to obtain a list of potential candidates to serve as Ginnie Mae president. After receiving this list, the administration must actively recruit well-qualified contenders.
Between the Trump and Biden administrations, five years without a confirmed president has left Ginnie Mae exposed and increased the risk that this exposure poses. It is time to recognize Ginnie Mae for what it does and what it needs.
I look forward to seeing the Biden administration’s choice to fill this critical role, and hope that the Senate moves swiftly to confirm the nomination. The prompt placement of a technically strong Ginnie Mae president will complement the very competent Ginnie Mae staff and enable Ginnie Mae’s smooth continuation as a foundational support of government lending.
And a strong and efficient government lending industry is critical to closing the wealth gap in America and assuring everyone has a fair shot at the American dream of homeownership.
Ted Tozer is a senior fellow at the Milken Institute’s Center for Financial Markets. Prior to joining the Institute he served as the president of Ginnie Mae for seven years.
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