NCSHA Conference Washington, DC Ted Tozer January 16, 2014 0
Overview U.S. Government-owned corporation within HUD Guarantee Mortgage-Backed Securities (MBS), which raise funding for virtually all loans insured or guaranteed by U.S. Government agencies (FHA, VA, USDA Rural Housing) Ginnie Mae does not originate loans or issue MBS, and thus has no exposure to credit risk Facilitate financing of diverse products: Single-family: forward & reverse mortgages, manufactured homes Multifamily: construction & permanent loans, hospitals, nursing homes, assisted living facilities Outstanding MBS guaranteed volume of over $1.4 trillion Monthly issuance of $20-35 billion Over 400 approved Issuers in program Ginnie Mae manages counterparty risk at the Issuer level 1
Government Support of Mortgages 100% 90% 80% The U.S. Government has had a significant role in the mortgage market going back at least 30 years Single-Family Mortgage Market Share 1955-2013 (Q2) Life insurance companies Other (credit unions, pension funds, individuals, etc.) Private mortgage conduits 100% 90% 80% 70% 60% 50% Government agencies & government sponsored enterprises (government backed mortgage pools & loans in portfolio) 70% 60% 50% 40% 30% 20% 10% 0% Savings & loans Commercial banks 40% 30% 20% 10% 0% Source: Federal Reserve 2
Engagement of HFAs with Ginnie Mae While HFAs acting directly as Issuers is a relatively recent development, HFAs have been utilizing Ginnie Mae for many years. Prior to becoming Issuers, many HFAs used the services of private lenders to access Ginnie Mae and its explicit government guarantee. This was the primary execution for HFA loan securitization until Fannie Mae entered the market. Leveraging private companies to act as servicer and issuer is still an option, but a growing proportion of HFAs have decided to develop their own capacity and becoming Ginnie Mae Issuers. 3
Engagement of HFAs with Ginnie Mae Prior to crisis, there was only one HFA that was an active single family Issuer. Since the crisis, many more HFAs have become approved Issuers and have begun working directly with Ginnie Mae. 12 HFAs are currently Ginnie Mae approved Issuers for single family mortgages. Two more applications are currently under review. Loans issued by HFAs have an outstanding balance of nearly $7 Billion. Many HFAs have expressed interest in becoming Ginnie Mae approved Issuers for multifamily. There is currently one approved multifamily Issuer. Two more applications for multifamily are currently under review. 4
Ginnie Mae s Value to HFAs The Ginnie Mae program provides multiple ways for an HFA to securitize its loans, each of which have an explicit government guarantee. Multi-Issuer pools allow HFAs to gain access to general pools in the TBA market and achieve a high value execution in selling their loans to private investors without utilizing the bond market. Single Issuer pools allow HFAs to use Ginnie Mae securities as backing for revenue bonds. Backing revenue bonds with Ginnie Mae securities allows the bond to obtain a AAA rating due to the explicit government guarantee. As the municipal bond market continues to improve, this may prove to be a more attractive option than a TBA execution. 5
Issuer Number Issuer Name Loans RPB 3977 ALABAMA HOUSING FINANCE AUTHORITY 13,268 $1,443,503,335 4043 COLORADO HOUSING AND FINANCE AUTHORITY 9,531 $1,326,463,228 4068 IDAHO HOUSING AND FINANCE ASSOCIATION 9,168 $1,109,872,319 4060 VIRGINIA HOUSING DEVELOPMENT AUTHORITY 6,104 $848,998,585 4061 UTAH HOUSING CORPORATION 5,106 $738,695,285 4062 PENNSYLVANIA HOUSING FINANCE AUTHORITY 6,469 $727,250,447 4077 KENTUCKY HOUSING CORP. 7,242 $641,499,084 4093 NORTH DAKOTA HOUSING FINANCE AUTHORITY 1,053 $135,344,273 4063 RHODE ISLAND HOUSING AND MORTGAGE 674 $100,308,462 4121 NEW HAMSPHIRE HOUSING FINANCE 712 $106,622,287 4087 WISCONSIN HOUSING AND ECONOMIC 50 $5,017,823 3676 NEW MEXICO MORTGAGE FINANCE AUTHORITY 23 $931,373 TOTAL 59,400 $7,184,506,502 6
RPB Aggregate HFA Issuance Outstanding ($ Millions) $8,000 Loans 70,000 $7,000 60,000 $6,000 $5,000 50,000 40,000 $4,000 $3,000 30,000 $2,000 20,000 $1,000 10,000 $0 2008 2009 2010 2011 2012 2013 - RPB ($ Millions) Loans 7
FHA, VA & USDA RHS Insurance Comparison FHA VA USDA RHS Purchase % down 3.50% 0.00% 0.00% Refi % down 2.25% 0.00% 0.00% Financeable costs over max. LTV upfront MIP; up to $8K for energy improvements & weatherization costs purchase: VA funding fee refi: VA funding fee, closing costs & discount points purchase & refi: Up to $6K for energy improvements upfront MIP Max. Purchase LTV 98.25 103.30 102.00 Upfront MIP/VA funding fee 175 bps 215 bps for 100 LTV, regular military, first use; 330 bps for subsequent use 50 bps for IRRRL (streamlined refi) 200 bps Annual MIP 135 bps (30 yr., below $625,500, max. LTV) 0 bps 40 bps Default Coverage 100% of UPB, but only 2/3 of foreclosure costs; interest not reimbursed on first 2 missed payments; interest reimbursed at HUD debenture rate on subsequent missed payments 25% of original loan amount or the total eligible indebtness, whichever is lower 40 50% for loans $144K 100% of the first 35% of the loan amount, plus 85% of the next 65% Eligibility restrictions none active duty military, veterans rural area & in some cases their spouses Loan Limits regional No loan limit; 25% down payment for none amount in excess of published county limits required Income Limits none none 115% of area median income 8
Issuance Share by Government Agency Loan Dollar Volume VA has been a growing proportion of our issuance; ~35% in CY 2013 90% Ginnie Mae Issuance Share by Govt. Agency Volume 80% 70% 60% 50% 40% FHA VA RHS/PIH 30% 20% 10% 0% 2010 2011 2012 2013* *Through November 9
VA Loans Program and Benefits The VA loan program provides a significant benefit for veterans and in many cases will be the most advantageous product for those eligible. Veterans can obtain a loan for the entire purchase price of the house plus roll the upfront insurance payment into the loan, making it >100% LTV. There is no monthly mortgage insurance premium. The number of veterans eligible for these loans has increased significantly due to the conflicts in Afghanistan and Iraq. VA loans have a lower aggregate default rate than even prime loans, even with no down payment required. Given these characteristics, originating VA loans could provide an additional way for HFAs to add value for low/moderate income and first-time homebuyers. 10
Multifamily Program Ginnie Mae s Multifamily program has approximately $81 Billion in loans outstanding. Representatives from our multifamily group will be meeting with members of the HFA community to discuss our program and ways in which HFAs can effectively utilize Ginnie Mae for multifamily lending. Multifamily Risk Share Ginnie Mae is awaiting congressional approval to engage in risk share lending in the multifamily sector. Once Congress issues this approval, Ginnie Mae will begin investigating and putting into place a Multifamily Risk Share program with strong, credit-worthy partners. Due to the experience and financial strength of the HFA community, this would be among the first places that we would look for partners once we are prepared to move forward. 11
Housing Finance Reform Legislation Both congressional bodies are currently working on legislation that proposes to change the housing finance industry significantly. Ginnie Mae, as a part of the administration, has been working to provide technical assistance and feedback to those drafting these pieces of legislation. One of the key functions of a healthy housing finance market is the separation of credit risk and interest rate risk. In the current system, this is provided by Ginnie Mae and others through the securitization process. It is our view that this function is critical to the success of any new system that is put into place. 12
Securitization Bifurcates Risk Lender s Inherent Risks Credit Enhancer & Issuer Credit Risk & Interest Rate Risk MBS Investor 13
Interest Rate vs. Credit Risk With interest rate risk, if mortgage rates rise, the value of the underlying security will fall Date Freddie Mac PMMS G2SF 3.0 Price May 2013 3.54% 106.40625% September 2013 4.49% 94.46875% Change 0.95% 11.9375% Over this time period, a Ginnie Mae 3.0% security with a par value of $1,000,000 lost $119,375 in market value. This is the equivalent of 11.9% of mortgages in a pool going to foreclosure with no recovery on the collateral. Foreclosure rates have an historical average of 2.5-3%, and generally do not result in an 100% loss. 14
Ginnie Mae and HFA Partnership Ginnie Mae and HFAs have the same mission, which is to provide affordable housing opportunities. Going forward, Ginnie Mae will continue to rely on the expertise and programs in the HFA community to help achieve this mission. Ginnie Mae will continue to optimize its program to better work with HFAs in achieving this common goal. 15