[Update 1: Clarifies the role of issuers as it relates to Ginnie Mae]
With the Federal Housing Administration actuarial results due this week, the federal agency may need to draw from the Treasury for the first time in it’s 78-year history. This forecasted draw would impact Ginnie Mae — which bonds those federally insured mortgages — though the government-guarantee securitizer can likely handle the impact.
In the securitization process, the mortgage originator usually faces the greatest risk in case of default. The FHA, as insurer, is also faced with those losses. Ginnie Mae as issuer of the mortgage bond is not exposed to the risk of default on FHA-backed mortgages. The audit explains Ginnie Mae can withstand losses not just at FHA, but also at the USDA and VA mortgages, where it also wraps mortgages into bonds.
The Department of Housing and Urban Development Office of Inspector General audited the past two fiscal years Ginnie Mae and concluded it remains confident the secondary market entity absorb any and all of the FHA’s losses.
Ginnie Mae incurs losses when FHA and other programs “do not cover losses that result from issuer defaults or in the event loans are uninsured and proceeds do no cover losses from default,” according to its own audit report.
However, the HUD independent auditor, with consultation from CliftonLarsonAllen, said Ginnie Mae has not yet completed the final certification and recertification of 20,000 mortgages following the default of Taylor, Bean & Whitaker in Aug. 2009. Ginnie Mae does have a corrective action plan in process to complete the final certification, the audit states, adding the recertification is past due.
The TBW fraud scheme worth $2.9 billion brought down the lender and Colonial Bank.
TBW originated, serviced and sold pools of home loans to Freddie Mac. The firm also wrote mortgages insured by the FHA. It remains to be seen what impact the TBW loans will have on the Ginnie Mae bottom line until the recertification is complete. The audit states that Ginnie Mae is likely to be able to absorb any future losses from TBW paper.
Ginnie Mae president Ted Tozer said in a statement the audit results bode well for the federal securitizer.
"Ginnie Mae has once again had a successful year, generating a profit for the U.S. Government for more than twenty consecutive years, clearly proving that our business model and securitization platform work effectively for American taxpayers," said Tozer. "Our lower net income in FY 2012 is attributed to an increase in provisions for losses, which is part of our risk management approach and demonstrates another way that we protect the American taxpayer."