Joseph Murin, the president of the Government National Mortgage Association, says his agency could fill a gap left by federal programs designed to resolve the housing crisis. All the agency needs is a little help from Congress.
In an interview, Mr. Murin said he wants lawmakers to amend his agency's charter so it could securitize any kind of federally insured loan. This would dovetail with plans floated by other agencies to take troubled assets off banks' hands or offer guarantees to lenders that modify loans. By themselves, those plans would leave the government (in the first case) or the banks (in the second) holding the loans. But repackaged into bonds with Ginnie's stamp, the loans could be easily sold to investors around the world.
"Giving Ginnie Mae the additional authority could be beneficial, especially now when our value in the investor marketplace is at such a premium," Mr. Murin said.
This week officials at the Federal Deposit Insurance Corp. and Federal Reserve Board advocated a return to the original, namesake strategy of the Troubled Asset Relief Program. The FDIC has also floated a proposal to absorb up to 50% of the losses on loans modified by lenders that agreed to its standardized procedures.
Under Ginnie's charter, it may securitize only loans insured by the Federal Housing Administration, the Department of Veterans Affairs, and two smaller agencies.
"I just believe that a government guarantee is a government guarantee, and whether it comes from the FHA, VA, or even the Treasury, what would it matter?" Mr. Murin said. "During this time when loan workouts, modifications, and foreclosure prevention are at the forefront of the government, they may be compelled to be creative."
After years spent in the shadow of Fannie Mae and Freddie Mac, Ginnie has taken center stage in the mortgage-backed securities market in the last year.
The surge in FHA lending has ensured a steady supply of raw material for Ginnie bonds. And according to Mr. Murin, investors' flight to quality has bolstered global demand for the agency's MBS — which, unlike those of Fannie and Freddie, are explicitly guaranteed by the government.
Ginnie guaranteed $22.7 billion of new MBS issues last month, more than quadruple the amount a year earlier, according to eMBS Inc. For the last six months, Ginnie's issuance has outstripped Freddie's, and in October and November it outstripped Fannie's as well.
Ginnie, which has only 61 employees, differs from Fannie and Freddie in another way: it is profitable. During the fiscal year that ended Sept. 30, the agency cleared $906 million on $1.015 billion of revenue.
Mr. Murin said he has not submitted a formal proposal to expand Ginnie's charter so it can securitize any government-backed loans, but "we have sent that language from our legal team up the chain of command."
To be sure, expanding Ginnie's charter has been discussed in Washington before, to little avail.
John Courson, the president of the Mortgage Bankers Association, recalled that in the early part of the decade, the trade group considered a proposal to open Ginnie securities to loans that were not insured by the government at all. "We had a debate about that for about six months, and then it just sort of died," he said. But a larger role for Ginnie "is certainly on the table" again.
Mr. Courson said a big concern for lenders is making sure that Ginnie continues to allow only homogenous loans into its two most frequently issued types of securities — Ginnie Mae I and Ginnie Mae II. If loans with unusual characteristics were added to these pools, investors would have a harder time gauging the bonds' prepayment risk and would likely pay less for the bonds.
"Ginnie Mae Is and IIs are incredibly liquid and incredibly fungible, and anything that disturbs that, it does not well serve getting the best execution, the best pricing for the borrowers in FHA," Mr. Courson said.
On the other hand, he said, one problem with temporary FHA programs like Hope for Homeowners is that the loans would have to go into separate pools. Investors would not be willing to pay up for the securities because "it's a program that at some point is going to go away." There will not be "enough size out there to create an ongoing, viable market," Mr. Courson said.
Jay Brinkmann, the MBA's chief economist, said that "if you have no new issuance for picking up price points," investors cannot know if they will ever be able to sell the bonds. Low bids on such securities would translate into high rates for the loans.
Mr. Murin said the FDIC- or Treasury-guaranteed loans he envisions Ginnie securitizing would go into separate pools. Investors would likely be attracted to the securities, he said, "because there is very little chance for prepayment via refinance. Therefore, if there is volume it will sell."
A Bush appointee, he said he has received "some encouragement" from the incoming Obama administration that he may keep his job, at least during a transition period. "I would not want to leave Ginnie without continuity, at least for the time being, since you don't want to have gaps, and there's a lot of momentum here," he said.
