Because of a proposal said to be in the forthcoming federal budget to privatize Ginnie Mae, lenders are concerned about the future structure of the secondary market for FHA and VA loans.
Sources in Washington said that while the Department of Housing and Urban Development may have mixed feelings about the privatization plan, no one seems to be actively opposing it, including the Mortgage Bankers Association.
However, for the lenders association to support privatization, "it would have to be something that doesn't take anything away from the existing advantages that the homebuyer has because of the Ginnie Mae guarantee," said Robert O'Toole, senior staff vice president for residential finance at the MBA.
"We're intrigued by the concept, particularly if it can result in an entity that will securitize conventional loans," he added.
The plan calls for the government to auction the exclusive right to securitize FHA and VA mortgages, sources said. Fannie and Freddie would be excluded from bidding. Fannie's and Freddie's charters would also be amended to prevent them from buying these loans. Analysts said that the privatization idea appears to be aimed at creating a budget surplus.
The strength of the current Ginnie Mae program, apart from its efficiency, is that its securities are backed by the full faith and credit of the U.S. government. This guarantee tells investors that they "will not lose principal on this product," Mr. O'Toole said.
"Anything that looks different than that would have an impact on the future FHA and VA buyers," Mr. O'Toole said.
Lenders say privatization of Ginnie Mae would change the landscape. There is a "need to understand more about what structure would come out, who the owner would be, and what kind of privileges would be granted relative to Fannie or Freddie," said Stanford Kurland, president of Countrywide Home Loans in Calabasas, Calif.
"The consumer either bears the benefit or the detriment of how the new organization would operate," he said. "If it becomes a more costly execution, I think that is clearly something that is passed on to the consumer."
Countrywide is a major participant in the Ginnie Mae program, Mr. Kurland said. Countrywide originated $16.4 billion of FHA and VA loans in the first 10 months of its current fiscal year, which ends Feb. 28, he said. This amounts to about 21% of its total production. Between 70% and 85% of this category has gone to Ginnie Mae; the rest to Fannie or Freddie.
Ginnie Mae does "not capture as much of the FHA-VA market share as they possibly could if their program had broader terms to it," Mr. Kurland said.
"There is a strong demand for mortgage-backed securities, and when we securitize FHA and VA mortgages in Fannie and Freddie securities, there is a very liquid market," Mr. Kurland said.
Meanwhile, lenders are waiting to see a model that demonstrates the viability and value of a privatized entity, Mr. Kurland said.
