House Financial Services Subcommittee Issues Testimony From Government National Mortgage Association
"Chairman Duffy, Ranking Member Cleaver, and Members of the Subcommittee, thank you for inviting me to appear today to discuss the
What Ginnie Mae Does
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"The easiest way to understand
"For nearly 50 years,
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"The design features of the Ginnie Mae model significantly limit the taxpayer exposure to risk associated with secondary market transactions. Importantly, we are different than the GSEs in that rather than acquiring, holding and managing credit risk and interest-rate risk, in
"The responsibility for protecting taxpayers against loss is a mandate that I take very seriously. In our current design,
"This is a very important point and something that distinguishes the Ginnie Mae model from the GSE model, and from some of the so-called "utility" model proposals. In our program, issuance and master servicing functions reside with private lenders. That means, servicing remains with the loan originators, who therefore have some stake in the performance of their loans. And by guaranteeing the MBS, not the underlying issuing entity,
"Additionally, the failure of an issuer in our program would cause
"The responsibilities of administering an explicit government guarantee are significant, and I know they are not taken lightly by policy-makers.
Housing Crisis Through Today
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"Pre-crisis, smaller nonbanks originated loans and largely sold them to bank aggregators who were
"At the same time, as banks were reducing mortgage credit risk exposure during the housing crisis, the GSEs did so as well by tightening their underwriting requirements, limiting mortgage access for borrowers without stellar credit. With the retrenchment in private market and GSE mortgage lending, FHA and
Growth and Risk Management
"Of course, growth comes with responsibilities. In order to manage the risks associated with this growth,
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"Our statute mandates that we provide liquidity to these programs while protecting taxpayers from loss. But it is worth noting that we cannot change our guarantee fees ("g'fees").
Staffing and Outsourcing Model
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"The design of
"In the future,
Planning for the future
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- Modernizing the Ginnie Mae program for managing pool collateral to reflect technological advances and to better align program requirements with risk.
- Providing more flexibility within single pools of securitized loans to allow mortgage servicing rights to be managed more efficiently.
- Streamlining platform access, support services, and program requirements, effectively lowering barriers to participation in the Ginnie Mae MBS program.
- Testing and evaluating new methods for connecting the capital markets to the residential finance industry through the Ginnie Mae platform.
"While we have effectively managed our growth since the beginning of the financial crisis, it is now time to look toward the Ginnie Mae of the future. These and other modernization efforts under consideration will ensure we are keeping up with market trends and demands, whether they be from the market or from policy-makers.
Housing Finance Reform
"As Secretary Carson said recently in his testimony to this committee, reform to our secondary mortgage market is an important piece of unfinished business from the housing crisis. Reform efforts should be built on shared goals of ensuring a well-functioning housing finance system that provides credit access, and reduces overall taxpayer exposure. It is notable that many of the recent housing finance reform proposals include, in some way, an explicit government guaranty as a catastrophic backstop for some portion of the mortgage market.
"If a government backstop, or wrap, of MBS were to be considered by
"A much-discussed aspect of housing finance reform is the creation of a common security and a common securitization platform.
"We have chosen to outsource a piece of our platform - our bond administration functions - to the private sector rather than build the function in-house. We have done this in large part because this bond administration function has existed in the market for more than a century. At Ginnie Mae we currently have this process outsourced to
Hurricane Recovery
"Hurricane(s) Harvey, Irma, and Maria has created an urgent issue for homeowners impacted by the hurricanes. As
VA Refinance-Loan Churn Issue
"Another recent development I would like to address is our efforts to curb
"Unfortunately, some lenders have actively worked to evade those new rules by changing their tactics to continue questionable lending practices. This created downward pressure on
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"The task force will focus on examining critical issues, important data and lender behaviors related to refinancing loans and will determine what program and policy changes should be made by the agencies to ensure these loans do not pose an undue risk or burden to veterans or the American taxpayer.
"The task force has already begun its work by examining data and information on the net tangible benefit to Veteran-borrowers, and the time needed to recoup fees following refinancing loans. In our view, changes need to be made to the requirements for what constitute an acceptable refinance loan - that is, a refinance that benefits the veteran. Other changes will include more stringent requirements on the number of payments needed before a refinance is permissible for delivery into a Ginnie Mae MBS, clearer standards for what constitutes a "premium loan" and therefore can only be issued into a so-called "custom pool," and joint discussions with individual lenders whose origination practices may negatively affect veteran borrowers or increase program costs and risks. For lenders who produce pools with inexplicably fast prepayment speeds, removal from the Ginnie Mae program is not out of the question.
"The task force will continue to work collaboratively until concrete solutions have been implemented to eliminate lender practices that are harmful to veterans, the Ginnie Mae program, and ultimately the American taxpayer.
Conclusion
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