Congress Examines Ginnie Mae’s Role in the Housing Finance System

Posted on December 01, 2017 in Uncategorized | Add Your Voice

Congress Examines Ginnie Mae’s Role in the Housing Finance System
The House Financial Services subcommittee on Housing and Insurance met Wednesday to continue its series on Sustainable Housing Finance.  The fourth of the hearing series examined the role of the Government National Mortgage Association (Ginnie Mae) in the housing finance system.

The subcommittee assessed Ginnie Mae’s: mission and role in the U.S. housing finance system; current financial condition; programs and products, including its multi-class and single-class securities; the agency’s effectiveness and ability to serve its customers; and current operational challenges.

Ginnie Mae Acting President Michael Bright’s testimony largely focused on the challenges currently facing the agency, and its ability to manage growth and its responsibility to the American taxpayer.  Two key points of Bright’s testimony included his highlighting the fact that to date Ginnie Mae has never needed emergency federal assistance to perform its mission; and that the agency has taken steps to address the shifting landscape of risk.

Bright also stressed that the agency’s issuer base has shifted from large banks to smaller mortgage companies with smaller balance sheets, thus triggering the need for a system of issuer failure protections including, as a first step, the 2014 minimum cash liquidity requirements for all issuers.  Bright also mentioned Ginnie Mae’s “strategic modernization” planning process, known as Ginnie Mae 2020, to be unveiled next year as an initiative promoting technology modernization and enhancements to counterparty risk management policies.

Subcommittee Chair Sean Duffy (R-Wisconsin) sought to explore the merits of risk models under which “the federal government is in a fourth dollar loss position, and whether there can be more levels before the federal government is expected to pay out.” Chairman Duffy also gave consideration to such a model being “a primary goal of any housing finance reform endeavor undertaken by this Committee.”

“Ginnie Mae plays a pivotal role on providing liquidity to both the single- and multifamily housing markets,” said Collingwood Group Vice President Stephanie Schader. “I am pleased to see Congress recognize this role, and to hear about Ginnie’s plans for modernization.”

A significant portion of the discussion concentrated on a September 2016 Milken Institute report, Toward a New Secondary Mortgage Market, authored by Bright and former FHFA acting director Ed DeMarco.

Ginnie Mae guarantees investors the timely payment of principal and interest on mortgage-backed securities (MBS) collateralized by loans insured or guaranteed by the federal government, such as loans insured by Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Ginnie Mae uses the explicit full faith and credit guarantee of the U.S. Government to back its MBS.

The Ginnie Mae guarantee is not at risk until the exhaustion of three levels of protection, which include homeowner equity, the insurance provided by the government agency that insured the loan, and the corporate resources of the lenders who issued the security. Ginnie Mae is in the fourth and last-loss position.

Ginnie Mae mortgage back securities (MBS) issuance totaled $504.58 billion for FY17, which is an all-time annual issuance record. Issuance in FY16 totaled $466.6 billion.

Click here to view the archived video of the hearing.

Mortgage Industry Panics Over Obscure Provision in Senate Tax Bill
The mortgage industry is panicking over a provision in the Senate tax bill that some analysts and trade groups say may drive small lenders out of the business.

The Mortgage Bankers Association and other bank and mortgage trade groups scrambled over Thanksgiving weekend after staff members discovered a provision in the bill that would change the time at which lenders pay taxes on the streams of income they earn from managing borrowers’ mortgages.

That change could cost banks tens of billions of dollars as the value of those income streams drops. The reduction would be enough to drive smaller lenders and non-bank lenders to either exit the mortgage market altogether or restructure their businesses, said MBA president David Stevens.

“It’s a fire drill,” Stevens said. “We’re scrambling to get people on phone calls. It would cause a significant disruption in the industry.”

“This is a major barrier to garnering industry support for the Senate tax reform proposal,” said Collingwood Group Chair Tim Rood. “Paying taxes upfront on projected mortgage servicing income is not a option for smaller lenders, and will drive many independent mortgage bankers out of business. I am also concerned that a resulting lack of liquidity in the MSR will significantly impair the balance sheets and earnings of servicers when they mark those assets to market. Hopefully this is an oversight and will be corrected as the House and Senate work to reconcile their bills.”

It’s unclear whether Senate tax writers intentionally targeted lenders — or whether they intend to leave the provision in place. The episode may reflect the unusual speed with which the Senate is trying to approve legislation that was introduced in written form only nine days ago. Senate leaders plan to vote on the bill Thursday or Friday.

read more: Bloomberg

Hurricane Rebuilding Pushes Prices Higher
Nearly all Federal Reserve districts reported modest or moderate economic growth in the past six weeks as business outlook improved and hurricane-related rebuilding pushed prices higher, the latest Beige Book survey showed Wednesday.

The survey — which will inform the Federal Open Market Committee of the latest conditions on the ground ahead of its Dec. 12-13 meeting — was conducted by the St. Louis Fed before Nov. 17.

Half of the 12 districts reported moderate growth while all but one of the rest said economic activity improved modestly. In the Chicago district, growth was slight overall, the survey said.

Rebuilding after the destructive hurricane season nudged costs higher, particularly for construction materials and freight transportation, the Beige Book said. Firms in the Dallas Fed district, hit particularly hard by Hurricane Harvey earlier this year, reported a return to business as usual as the initial post-hurricane surge in retail and auto sales “begun to recede.”

read more: Bond Buyer

New Mortgages Allow Renters to Buy With Tiny Down Payments
The down payment has been a big obstacle in recent years for renters looking to buy their first homes.

A new mortgage offering aims to ease the burden.

Home Partners of America, a rent-to-own company, is offering a new mortgage product to tenants that applies some of the appreciation in their home’s value during the time they have lived there toward reducing the down payment. In areas with even modest home-price appreciation, that could reduce the down payment requirement to almost nothing.

To qualify, tenants must have paid their rent on time for two consecutive years and be considered first-time buyers, meaning they haven’t owned a home in the last three years.

The program harkens back to the housing bubble, when millions of Americans received mortgages for homes they couldn’t afford with little or no down payment.

Bill Young, co-founder and chief executive of Home Partners, said a critical distinction with his company’s program is that prospective buyers have been paying their monthly rent on the same home over a long period, demonstrating they can afford it and are committed to staying there.

“Their skin in the game is they’ve proven they can pay their rent on time for 24 months,” Mr. Young said.

read more: WSJ

If You Own a Cheaper House, You’re in the Money
While home prices have always been ruled by supply and demand, that calculation is on steroids in today’s market, because of an acute housing shortage.

The shortage is worst at the low end of the market, which is why prices in that tier are rising at twice the pace of those on the high end of the market.

Nationally, home prices jumped 6.2 percent in September compared with September 2016, accelerating from the annual gains in previous months, according to the S&P Case-Shiller Index.

Prices have now recovered nearly 46 percent from the trough of the housing crash back in early 2012 and are nearly 6 percent higher than the peak of prices in 2006.

Of course, all real estate is local, and prices are rising more quickly in some markets than others. More telling is when you look at the price tiers in each market. The low end of most markets is where the most demand is, as millennials age into their homebuying years. It is also where the least supply is.

read more: CNBC

Borrowers: Mortgage Loan Limits Are on the Rise
On Tuesday the Federal Housing Finance Agency (FHFA) announced the 2018 maximum conforming loan limits for mortgages to be acquired by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

According to the release, the new year’s maximum conforming loan limit for one-unit properties will be $453,100 — representing an increase from $424,100 in 2017.

Additionally, the FHFA published its Q3 2017 House Price Index (HPI) report, including estimates for the average U.S. home value over the last four quarters. The report found that with relatively favorable economic conditions and a continued shortage of housing supply, price increases in the third quarter were generally robust and widespread.

“At some point, declining housing affordability should temper appreciation rates in some of the nation’s fastest appreciating markets, but our third-quarter results show few signs of that,” said Andrew Leventis, FHFA Deputy Chief Economist.

Based on the requirements set by the Housing and Economic Recovery Act (HERA), Fannie Mae and Freddie Mac have to adjust their conforming loan limit each year to reflect the change in the average U.S. home price.

read more: M Report

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