Ginnie Mae played a crucial role in stabilizing the housing industry between 2008 and 2012, yet the organization continues to be understaffed and underfunded, at a disservice to the American people. Ginnie Mae's role in the housing industry — and, in fact, in the American economy — is far too important to allow it to deteriorate for the sole purpose of political gamesmanship. Politics has no place at the table when it comes to supporting affordable housing for the American public.
Prior to 2008, Freddie and Fannie answered only to their stockholders. After the subprime meltdown of 2007-2008, the GSEs entered conservatorship under the Federal Housing Finance Agency. The debate still rages as to if and when that conservatorship should end. Ginnie Mae, on the other hand, answers directly to the Department of Housing and Urban Development. It falls under HUD's budgetary scrutiny and restraint, even though it is a wholly owned corporation of the federal government. As a result, Ginnie Mae is consistently underfunded and underrepresented at the proverbial table when it seeks the resources necessary to carry out its mission of making affordable housing available to several groups of Americans who need that assistance.
I respectfully call upon all interested parties to raise their voices in support of an independently structured Ginnie Mae. And I call upon the new administration and Congress to release Ginnie from the budget and supervisory constraints imposed by HUD oversight. It is time to separate Ginnie Mae from HUD. It is time for the federal government to recognize its importance to the housing industry and provide access to adequate funding.
Ginnie Mae has some key similarities to the government-sponsored enterprises, and some critical differences. All three organizations provide much-needed liquidity to the housing markets but unlike Ginnie, Freddie and Fannie are far riskier. This is because the GSEs are responsible for credit risk, whereas Ginnie provides catastrophic insurance against only principal and interest risk to the bond buyers. Thus, Ginnie provides a much-needed cash injection, as well as stability, to a sector of the home buying market that needs it the most, namely, first time home buyers through the Veterans Affairs and Federal Housing Administration programs.
While traditional mortgage applications crashed and foreclosures reached historical highs, Ginnie Mae worked to provide historic levels of liquidity to a market impacted by the conservatorship of the GSEs. Ginnie Mae increased its liquidity capabilities through its outreach to global markets. In time, investors came to favor Ginnie Mae-issued securities — in large part because of an explicit government guarantee protecting those securities (in contrast to the implicit guaranty accompanying a GSE security).
Today, Ginnie Mae backs two-in-five American home loans, making it larger than Freddie Mac. In 2015, the agency returned $2.2 billion to American taxpayers. And yet, according to a recent study by an outside auditor, Ginnie Mae is understaffed and underfunded. The report notes that the agency is home to a staff of 130, and supplemented by well over 500 outsourced contractors. Nevertheless, Ginnie continues to successfully make credit available in an otherwise tight marketplace.
Ginnie's repeated pleas for a more adequate budget and more resources have been consistently and repeatedly denied by the Department of Housing and Urban Development. Why?
The risks of continuing down this path are much larger than many realize. Investors are now becoming concerned with Ginnie's lack of resources to effectively monitor and oversee its $1.7 trillion portfolio. If not properly addressed, we could eventually experience a loss of confidence from both the domestic and global secondary markets. Any failure, or even downsizing, of Ginnie Mae could have a dramatic impact on the market, including a loss of liquidity available to support some of the most vulnerable homebuying markets, such as FHA and VA borrowers.
The housing and real estate industry, one of the primary drivers for the entire U.S. economy, is being restrained in its recovery by public policy. But almost nobody is speaking up about it.
Although Freddie Mac and Fannie Mae, both government-sponsored enterprises, are now household names for their roles in securitizing mortgages, fewer people know and understand the role of Government National Mortgage Association. They should.
I call upon the largest advocates in the mortgage industry, Mortgage Bankers Association, National Association of Home Builders, National Association of Realtors and any associations concerned with the availability of credit to less-privileged Americans, to speak up on the matter. If these institutions are serious about affordable housing, they cannot deny that Ginnie Mae represents the best means to that end.
Joseph Murin is a former President of Ginnie Mae.