Ginnie Mae president Ted Tozer has a problem and it goes like this: over the past 18 months the agency has approved 60 new firms to issue government-backed MBS, but few are actually issuing.
He'd like to change that.
Tozer admits that the Ginnie's quandary isn't really volume related. The origination of Federal Housing Administration and Department of Veterans Affairs loans (the collateral for GNMAs) continues along at a steady clip—especially in the purchase money market where low downpayment loans are much desired by consumers.
The issue, as he and others have pointed out, boils down to the enticing servicing-released premiums offered by the megabank aggregators, namely Wells Fargo, Bank of America and JPMorgan Chase.
Small independent nonbank and community bank originators of FHA loans would rather sell their new production “servicing released,” giving away the 44 basis point strip on the loans. In other words, smaller lenders upstream their loans to the big boys who dominate the issuance business.
“We would like them [the smaller players] to keep that strip and service the loans over time and actually issue securities,” Tozer said in a recent interview with ASR sister publication National Mortgage News. But how Ginnie's president accomplishes such a task is a different matter.
Since the housing market crashed three years ago, SRPs on Fannie Mae and Freddie Mac loans have not exactly been wonderful—but on GNMA product the pricing has held up.
In short, the balance of power among GNMA issuers rests with the 'Big Three of Wells, BofA and Chase. Together these firms control a stunning 62% of the GNMA servicing market as well.
If any of these megabanks or their servicing operations implode GNMA might find itself facing a dilemma witnessed by Fannie Mae and Freddie Mac, namely yanking away servicing portfolios at a moment's notice.
Tim Rood, managing director of The Collingwood Group, a Washington-based consulting firm, estimates that less than one-third of GNMA (FHA/VA) originators are issuing securities. “It's a real problem,” he said. “Is it because of a lack of servicing expertise or are they just confused?” he wonders.
Of course, some might look at the problem and say, so what? Take the SRP cash upfront and run. But according to Rood, if an originator keeps the servicing and becomes a bond issuer instead it can earn an extra 100 basis points over time.
“I think it's a matter of education and comfort,” added Rood, whose partner at Collingwood includes former Ginnie president Joe Murin. “GNMA needs to offer issuers more than a two-sided pamphlet and a pat on the head.”
For his part, Tozer knows that the agency needs to improve its outreach to lenders and is hoping for some type of summit on the issue this fall, possibly at the annual convention of the Mortgage Bankers Association. “We're talking about a summit but we haven't finalized any thing yet,” he said.
David Lykken, managing partner of Mortgage Banking Solutions, Woodway, Texas, believes it's in the best interest of the entire residential industry to diversify the Ginnie issuer/servicer base. “It's time for us to ask whether we feel comfortable having so much of the issuance power in the hands of so few,” he said. “It's time to ask: if I have the ability and money to service, well, why aren't I?”