Ginnie Mae's rogues gallery

The Washington Post's 2,342-word opus on Ginnie Mae's ongoing relationship with troubled lenders doesn’t contain any startling revelations; it’s a commonly held view, both inside the industry and out, that both Ginnie and its sister agency, the FHA, have been too accommodating of problem lenders like Lend America. That’s why both agencies have been raising the bar for lenders, however belatedly.

If the FHA has attracted more public scrutiny, it's only because it has primary responsibility for policing its lenders and because its capital reserve ratio has fallen below the 2% level required by Congress, raising concerns that it may need a bailout.

The Post article, a joint effort with the Center for Public Integrity, does provide some hard data, sourced from analysis of government records, court documents and statistics in a HUD database, on the number of firms in Ginnie’s rogues gallery: It says the agency has provided taxpayer backing for bundles of  FHA loans securitized by Lend America and at least 37 other mortgage companies with a history of reckless lending, fines or other sanctions by state and federal regulators or civil lawsuits.

But the most important point the article makes is not that there are a lot of problem lenders Ginnie does business with; it's that continuing to do business with these firms hurts taxpayers, even if the agency still has enough money to meet its claims.

Why?

Having the ability to swap the home loans they've made for new cash allows these firms to make even more loans. According to the paper, housing experts say this dynamic “turbocharges the type of bad mortgage lending that first helped trigger the financial crisis that battered global markets over the past two years.”

"Ginnie is like an accelerant to a fire," the paper quoted Anthony Sanders, professor of real estate finance at George Mason University, as saying.