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Ginnie Mae Overview: Who We Are
• Government National Mortgage Association (GNMA or Ginnie Mae)
• Established as a corporation within HUD by the Housing & Urban Development Act of 1968*
• Effectively split from Fannie Mae, which was created in 1938 in response to the Great Depression
• Mission is to expand affordable housing by linking global capital markets to the U.S. housing finance markets
*HUD Act [12 USC § 1716b]
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Ginnie Mae Overview: What We Do
• 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– Private lending institutions issue MBS
• Facilitate the financing of a variety of products:– Single-family: forward & reverse mortgages, manufactured homes– Multifamily: construction & permanent loans, hospitals, nursing homes,
assisted living facilities
• Over $1.4 trillion in outstanding MBS guaranteed – FHA loans back about 75% of outstanding MBS
• In 2012 about half of all purchase mortgages were financed through Ginnie Mae MBS
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Ginnie Mae MBS Outstanding Relative to GSEsMBS outstanding in billions
Sources: Fannie Mae and Freddie Mac Monthly Reports; Ginnie Mae data includes HECMs
May 2013: $2,763B
May 2013: $1,406B
May 2013: $1,601B
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U.S. Mortgage Market
• U.S. mortgage market is comprised of two segments:– Primary market is made up of the borrower and lender/Issuer– Secondary market is made up of the lender/Issuer and investor
• The secondary market enables lenders to sell the loans they originate to a third party
– Lenders transfer loans off balance sheet & transfer risk that borrower will default – Lenders transfer risk that interest rates will rise to investors– Lenders use proceeds to make new mortgage loans available
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TBA Market Overview
• To-Be-Announced (TBA) market was created in 1970s to support Ginnie Mae securitization & financing of government insured loans– Virtually all government insured mortgages are sold into the TBA market – sold
as part of MBS guaranteed by Ginnie Mae, Fannie Mae & Freddie Mac
• Facilitates forward trading of mortgages (delivery can take over three months, on average takes two months)
• Enables lenders to lock in rate for loan originations prior to actually originating loans
• Most liquid & important secondary mortgage market
• System provides broad & stable capital availability for potential homebuyers throughout the U.S.
• TBA securities have U.S. Government guaranty, which facilitates scale of market & fungibility of securities
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FHA Loan in the Securitization Process
Borrower finds home they’d like to
buy
Lender pools loan & delivers MBS to investors; See slide 8,
“Settlement Date”
Lender had already pre-sold the mortgage &
locked in a rate; See slide 7, “Mon. 9AM”
Borrower goes to FHA-approved lender
to obtain mortgage
Borrower’s application is processed &
mortgage closes
Borrower makes monthly payment to lender/servicer who
forwards it to investors
60-90 days
Once mortgage is closed & delivered, servicing of the loan begins
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Interest Rate Risk
Credit Risk
&
Credit Enhancer & Issuer
MBS Investor
Securitization Bifurcates Risk
Lender’s Inherent RisksCredit Risk
Interest Rate Risk
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Government Exposure to Mortgages
• The U.S. Government has had a significant role in the mortgage market going back at least 30 years
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Our Guaranty Matters – it Provides Safety & Liquidity
• Ginnie Mae provides a U.S. Government guaranty on the monthly payment of MBS to investors
• Government guaranty qualifies mortgages for the TBA market & attracts capital from throughout the world to invest in U.S. mortgages
• Guaranty makes investment in U.S.-backed mortgages exceptionally safe & provides liquidity to them
• Guaranty assures investors they will get paid regardless of loan performance or servicer performance
• Guaranty homogenizes mortgages & lender/servicers so they are indistinguishable to investors
• Homogenization of mortgages & lender/servicers enables investment in enormous blocks of mortgages
– $280.4 billion in daily TBA MBS trading in 2012– TBA market would not exist without government guaranteed MBS
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Scope of Mortgage Market & Government Involvement
• Total U.S. outstanding mortgage debt is currently at almost $10 trillion – Outstanding mortgage debt is roughly equivalent to total value of assets
on banks’ balance sheets
– In 2012, only about 10% of mortgages were kept on banks’ balance sheets
– If all banks did was invest in mortgage loans, they would barely be able to fund all mortgages in market, i.e., banks would not fund auto loans, credit card loans, etc.
• Government-backed securitization is necessary to maintain current volume available & preserve the 30-year fixed rate mortgage
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