Ongoing proposals to expand the mission of Ginnie Mae have recently collided with a controversial Republican proposal to remove both the government-sponsored enterprise and the Federal Housing Authority from the auspices of the U.S. Department of Housing and Urban Development-creating a whirlwind of speculation over the future of the GSE.
Ginnie Mae hopes to be granted a mission expansion as part of its fiscal 2001 budget that will be presented to Congress next month, through two programs. One, called the Community Housing and Investment Fund, would allow Ginnie Mae to purchase its own mortgage-backed securities. The other, the PMI Securitization Program, would give the GSE the ability to securitize conventional loans that Fannie Mae and Freddie Mac do not.
"These are two proposals are just a couple of ideas that HUD is studying along with other ideas to strengthen Ginnie Mae," said HUD spokesman Chris Walz. "I do know there is definitely some support out there in the industry for it. And right now, it's still in the studying phase."
In light of these two proposals, the Mortgage Bankers Association has recently formed a task force to see if the association would be able to support either of the programs. "It is the core value of MBA that there be a strong Ginnie Mae, a Ginnie Mae that's a constant presence in the market, and we're looking at ways to assure that," said Phyllis Slesinger, staff vice president for regulatory affairs at MBA.
She added that the committee, which consists of chief executive officers from 19 large U.S. banks, securities firms and insurance companies, just has its initial meeting, and is still in the organizational and formative stages.
"[Ginnie Mae] has been under siege in recent years," Slesinger said. "There have been talks about Ginnie Mae being privatized; there have been talks about increasing the guarantee fee."
Enter Congress
The House banking committee subcommittee on housing, headed by U.S. Rep. Rick Lazio (R-NY), has been floating around a proposal that would combine Ginnie Mae and the FHA into a separate enterprise, out of HUD's realm. While this is the first time this has come up recently, the overall concept of combining the two departments is not new.
"Back in 1995, when we took over as Republicans, we actually drafted some language, but we're doing that on a lot of stuff, and that's actually our foundation," said a member of the subcommittee. "Where we're starting from now, is going back and looking at that legislation and just doing due diligence and coming up with some recommendations and talk more about it with Mr. Lazio and then we'll take it from there. I think the issue very open at this moment." Nothing has been formally written on this proposal as yet.
Industry observers who have been following this situation for the past five years doubt that this proposal will come to fruition this year, with it being an election year in which control of all three elected branches of the government is up for grabs.
"[What] you really need for these things to become public policy when you have a lot of people who like the existing arrangement," said Art Frank, head of MBS research at Nomura Securities. "You really need a consensus to develop between an administration and the leadership of both houses in Congress, and there's no sign of that here. It's kind of interesting, but I think it's a long run. I suspect it is putting something on the table for discussion, to possibly influence public policy after the election on to 2001."
Yet, others feel this is just a Republican ploy to spin Ginnie Mae off to dismantle HUD. "The Republicans had at one time thought if you take FHA and Ginnie Mae out of HUD, HUD-the agency they hate-would die on the vine. Let HUD die from lack of the engine that drives it which is Ginnie Mae and FHA," said a source.
"I don't know what they're thinking other than if they don't like HUD so much," said another source. "And this year politically, they would like to bash [HUD chairman Andrew Cuomo] as much as possible, and I think that that might be an easy way for them to do it."
"They just went through the old stuff," said a source. "These guys still can't stand Cuomo and HUD, and they wanted to flow as sort of a political stick in the eye, that's how it's being seen and treated so far. Whether or not it's a serious proposal, only time will tell, but that's what's driving it."
The Details
Under the proposal, Ginnie Mae and FHA would be combined to operate in a manner similar to that of Fannie Mae and Freddie Mac. Whether the new agency would be privatized and regulated by the Office of Federal Housing Enterprise Oversight, or remain under full government control has not been ironed out.
However, the proposal would grandfather all current Ginnie Mae MBS, which have the full faith and credit of the U.S. government, while MBS issued under the new agency would not have that guarantee. And that has analysts worried.
"I think that to have two-tier Ginnie Mae-that you have old Ginnie Maes that are full faith and credit of the government, and new Ginnie Maes that aren't would be a negative for the mortgage market, at least in the short to intermediate term," said Frank. "That would be a liquidity problem, and already Ginnie Maes have poorer liquidity than Fannies by at least for large size trades. And so I think that at least in the near term, that would be a negative."
"The ideas and concepts are being thrown around," said Karen Kapen, a member of the MBA's legislative department. "I understand what they're trying to do from HUD's perspective. They want to make sure Ginnies trade as well as Fannies and Freddies."
Because the proposal has not been formalized in writing, officials from both Fannie Mae and Freddie Mac would not comment.
HUD Responds
While the housing subcommittee has said that there aren't any decisions on anything, they would like to get something formalized "sooner better than later." HUD is not taking any chances on the matter and has firmly stated its opposition.
"Congressman Lazio's plan to bring an end to HUD/FHA and Ginnie Mae will make it harder for future generations-especially minorities and immigrants-to realize the American dream of homeownership," HUD stated in a prepared statement. "The plan also poses a needless risk to the nation's homebuilding and real estate industry, which as Federal Reserve Chairman [Alan] Greenspan recently noted, are the primary drivers of the national economic success story.
"Congressman Lazio would apparently risk all this simply because of his ideological opposition to federal support for the nation's housing sector."
As far as the rest of the industry is concerned, it is a consensus that "We'll just have to wait and see what happens," Kapen said.
