The challenges of a Ginnie Mae-based approach to housing finance reform
One of the top GSE reform options on the table looks to the success of Ginnie Mae‘s model and was conceived by two industry stalwarts who have the respect and experience to give it a fighting chance.
But in order to make the reform possible, says Michael Stegman of the Bipartisan Policy Center, there are key changes, especially financially, that would need to happen. Stegman, a former top White House advisor on housing policy under the Obama administration, explained the challenges in a recent blog on the center’s website, marking the seventh piece in a series from the BPC that focuses on the need for housing policy reform.
In it, he outlines the logistics behind Michael Bright and Ed DeMarco’s proposal to end the GSEs’ conservatorships, which would use the Ginnie Mae platform “to create a new secondary mortgage market and ensure the continuation of the 30-year fixed rate mortgage, a relatively low-cost product that has enabled millions of American families to achieve their dream of homeownership.”
From the blog (Check here for his full explanation):
Bright and DeMarco would expand Ginnie’s authority to wrap private sector credit-enhanced pools of mortgages whose mortgage-backed securities (MBS) would hopefully be as attractive to investors as are Ginnie’s current securities. Rather than doing away with Fannie Mae and Freddie Mac, they would run both GSEs through receivership and transform them into mutually owned and operated insurers that would become prominent credit enhancers in the reformed system.
To make all this possible, Bright and DeMarco would remove Ginnie from the U.S. Department of Housing and Urban Development and create a “standalone Government Corporation like the FDIC [Federal Deposit Insurance Corporation], with authority over its own budget, hiring, and compensation.”
The main issue with this, however, is money, which is an issue that’s not new to HousingWire.
It is therefore imperative that Ginnie have sufficient resources to properly oversee and manage its network of issuers and servicers. Yet, Ginnie’s request this year for an additional $5 million in appropriated funds to hire more in-house staff has fallen on deaf ears. If Ginnie cannot convince Congress of the merits of this modest proposal, why should we believe that lawmakers will give the institution total budgetary independence in a vastly expanded, reformed system?
Former Ginnie Mae President Joseph Murin has explained in several blogs on HousingWire the possible opportunities that exist by using Ginnie Mae’s model as a basis for reform. However, the issues he presents come back to the same area, money.
From Murin’s blog:
In Ginnie Mae, we have a proven business model. Ginnie has been a success story in spite of underfunding and hurricane-like market headwinds in the past 10 years. Why not build upon something that has been shown to work?
I’ve made the case in the past that Ginnie Mae should not be based within the budget allocated to HUD. In short, I believe the budgetary limitations imposed by HUD’s budget and oversight are causing a shortage of resources; an artificial restraint on Ginnie’s ability to seek capital investment and even a disincentive to top industry talent which would otherwise consider joining the corporation.
Therefore, it would be best if the new entity was a stand-alone structure, answering to perhaps a five-person committee appointed by and accountable to Congress.