Thelevel of involvement of Ginnie Mae and other government lenders in themortgage market is too high and needs to start decreasing, Theodore W. Tozer, Ginnie Mae president, said in his keynote address at the ABS East conference in Miami, Fla., this morning. When an audience member asked whether Ginnie Mae was suppressing private label issuance a common theme as investors fret over the unprecedented level of federal government involvement in the housing market Tozer said he did not think that was an accurate characterization. But he agrees that the governments level of involvement is too high. When 34% of residential loans in the capital market are guaranteed by Ginnie Mae, thats too high, Tozer said. We do what we can to support the return of the private label [residential mortgage-backed securities] market. We look at ourselves as a stopgap.
The U.S. government should be in the housing market to keep capital flowing when the private sector cannot, Tozer said. The concern now though is that we have so much volume and overhang. It will be difficult to transition, because if the government pulls out cold-turkey it will be a huge shock on the economy.
The agency is bringing on staff to more closely monitor risk and stress levels on issuers, Tozer said, since the key difference between Ginnies business model and that of other government-sponsored enterprises is that it only absorbs losses in the case of an issuer default, not a borrower. Both Freddie Mac and Fannie Mae get hit by borrower defaults.Ginnie Maerecently increased its minimum issuer capital requirement to $1.5 million, up from $1 million.
Tozer said investors should keep a close eye on the Ginnie 2 program, which was ramping up and tailored to meet new risk concerns. Bonds will be hitting the market quicker, Tozer said, saying in November Ginnie 2s will be coming out on a daily basis. But on the flip side, next year were going to get into additional disclosure. The Ginnie 2 pool is also deliberately larger, so that prepayment shocks felt in the case of certain issuer or specific market default spikes wouldnt be felt as severely by the investor.
Tozer said Ginnie Mae is working more closely with stakeholders as it reassesses its role in the post-crisis market. He said people ask him why Ginnie Mae had avoided conservatorship, unlike Fannie and Freddie, and he said that he feels it comes down to Ginnies support of both the bondholder and the originator.