A new program to provide the benefits of Ginnie Mae securitization to Federal Home Loan Bank members has been slow getting off the ground, but industry insiders say momentum is building.
So far only six Ginnie Mae pools — with an unpaid principal balance of $9.6 million — have been issued through the collaboration spearheaded by the Federal Home Loan Bank of Chicago. Other than the Chicago bank, just the Atlanta and Boston FHLBs have received regulatory approval to participate. But observers expect other FHLBs to apply while several state housing finance agencies have already expressed interest in getting involved.
The initiative, known as the Government Direct program, was first piloted in 2013, and provides an option for members of the participating FHLB regions to securitize government-insured loans through Ginnie Mae. It is an extension of the Chicago FHLB's original Mortgage Partnership Finance program, designed to allow small and medium-sized lenders access to the secondary market.
The first Ginnie Mae mortgage-backed security, which included loans from both the Chicago and Atlanta FHLBs, was issued as part of the new collaboration in July after the Atlanta bank had received regulatory approval to participate in March. Applications by the Des Moines and San Francisco FHLBs are currently pending at the Federal Housing Finance Agency and it is believed more are on the way.
"It is picking up steam," Ginnie Mae President Ted Tozer, speaking on the sidelines of a recent conference in Arlington, Va., said of the new program. He has been encouraging all the FHLBs to get involved. "If everything goes right, hopefully by spring, maybe nine or 10 of the FHLBs will be feeding product into the program."
Meanwhile, state and local housing finance agencies that have relationships with FHLBs are expressing an interest in the Ginnie Mae conduit.
Jason Boehlert, executive director of the National Association of Local Housing Finance Agencies, noted that a substantial number of NALHFA members have connections with their regional FHLB, which enhances their ability to provide affordable housing in their area. He said the ability to contribute Federal Housing Administration, Department of Veterans Affairs or Rural Housing Administration loans into larger, more geographically diverse Ginnie Mae pools means better pricing.
In May, Ginnie Mae officials talked about the MPF Government Direct program at NALHFA's annual meeting. "There are some benefits you can't get elsewhere," Boehlert said.
Once a FHLB is approved by the FHFA, members can sell their loans directly to the Chicago FHLB, which aggregates them and pools them into Ginnie Mae mortgage-backed securities.
Garth Rieman, director of housing advocacy and strategic initiatives at the National Council of State Housing Finance Agencies, said his group’s members are discussing the program with their closest FHLB. Currently, 35 state HFAs are associate members of a home loan bank. Many state housing finance agencies already securitize FHA-insured loans, Rieman said.
"This may be a way for the HFAs and FHLBs to combine some of their strengths to run a program a little bit more effectively," he said.
Ginnie Mae issuers generally rely on third parties for pipeline management, mortgage processing and other securitization services, funneling loans via the FHLB system may save on cost.
"If the HFAs and FHLBs could provide the same service at a lower fee, that would be a huge benefit," said Peter Milewski, director of homeownership lending for MassHousing, a Massachusetts housing finance agency that has already signed up for the program to diversify its product offerings. (The Boston FHLB was approved to participate in September.)
The Massachusetts agency has for years bought conventional mortgages, then sold them to Fannie Mae and retained the servicing rights in order to intervene when a borrower runs into problems.
"We are very happy with our existing relationship with Fannie Mae," said Milewski, but he added that the new MPF program will allow the agency to gain expertise to be a "really good FHA, VA and [U.S. Department of Agriculture] lender." The Boston FHLB will allow MassHousing to sell one FHA loan at a time and retain the servicing.
"The Federal Home Loan Banks are going to be a fantastic resource for housing finance agencies nationally because they are starting to spread their wings and becoming more competitive in the secondary market," he said.