There was a time—prior to the housing crisis—when the GNMA 'Eagle’ wasn’t worth much and FHA/VA lending accounted for less than 3% of all loans funded each year. But that was then.
Today, Government National Mortgage Association president Ted Tozer is a somewhat happy man—or should be. Plenty of mortgage banking firms are lining up to get their GNMA approvals so they can issue government-backed mortgage bonds and service the underlying loans.
And Tozer is pleased to have them. As he’s told me in the past, the last thing in the world this government guarantor wants is to have its business dominated by a handful of megabanks such as Wells Fargo, JPMorgan Chase, and Bank of America. (
It’s safe to say that GNMA is a force to be reckoned with. At mid-year GNMA mortgage debt (in the form of FHA/VA loans) stood at a record $1.279 trillion, accounting for 14% of all housing loans in the U.S.
If a lender wants to go anywhere today in terms of loan volume and market share it needs GNMA approvals. And if an outside investor, particularly a hedge fund, is looking to enter the mortgage business, the government eagle is at the top of its wish list.
“I would say that 80% to 90% of the time the one thing that is on the buyer’s wish list is the GNMA eagle,” said Chuck Klein, managing partner in Mortgage Banking Solutions, Austin, Texas. “Right now it’s very important. Buyers ask for it.”
(In general, on a de-novo basis, it can take anywhere from nine to 18 months to get government approvals—even longer depending on a firm’s capital position and management team. Presently, the minimum capital requirement is $2.5 million, though rumors abound that sometime in 2013 the agency may raise it to $3 million or higher.)
But it’s not just market share that’s important—it’s the belief that if Fannie Mae and Freddie Mac disappear someday, that GNMA will almost certainly be left standing—so says Dale Kurland, a principal in an advisory boutique called Classic Strategies, which is based in New York. “It’s an important part of today’s sales,” she said.
Placing a value on the government license is not always easy. Some M&A specialists have suggested that the license alone is worth upwards of $1.5 million compared to say $750,000 pre-crisis.
But if an outside investor thinks it can swoop in and purchase just the license, it is badly mistaken.
As Klein points out, “You can’t just sell a company and walk away from the thing. GNMA won’t stand for that. They want to see consistent management over the years.”
Many lender/servicers have had their eagle for years and never used it much—that is, until FHA lending took off like a rocket when the subprime market collapsed for good in 2008.
In the servicing space, Ocwen Financial, a veteran specialty servicer, has kept its GNMA approvals intact even though it’s not much of a player in the government market. From what I’m told it expects to expand its presence in the sector over the next two years.
In short, the eagle is becoming a matter of “don’t leave home without it.”
