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The Government National Mortgage Association (GNMA, also known as Ginnie Mae), is seeking to help the federal insurance programs that feed its business catch fraud and other sources of potential losses, GNMA President Joseph Murin said, according to Bloomberg.
Ginnie Mae provides guarantees on mortgage-backed securities (MBS) backed by federally insured or guaranteed loans, mainly loans issued by the Federal Housing Administration, Department of Veterans Affairs, Rural Housing Service, and Office of Public and Indian Housing. Ginnie Mae securities are the only MBS that are guaranteed by the United States government.
Ginnie Mae is stepping up evaluations of data on Federal Housing Administration and Department of Veterans Affairs loans being packaged into its securities and is considering ways to expand the use of automated tools to complete the task, Murin said in a telephone interview last week.
“If it slips through the cracks on the way over here, we want to be the last line of defense,” he said.
The FHA, the main source of Ginnie Mae collateral, “has capacity issues that require immediate attention,” after its share of new loans soared as private sources of mortgage financing retreated amid the U.S. housing slump, Shaun Donovan, President Barack Obama’s pick as secretary of Housing and Urban Development, said in a Jan. 13 congressional hearing. Issuance of Ginnie Mae-backed home-loan bonds almost tripled last year to a record $269 billion, according to newsletter Inside MBS & ABS.
Murin, 59, said his Washington-based agency, formally called the Government National Mortgage Association, is also ramping up disclosures and changing other rules to improve demand for its securities. One step it’s seeking to accomplish next quarter is the release of data on the amount of delinquencies and defaults on the loans underlying its bonds, Murin said.
Senator Richard Shelby, an Alabama Republican, said last week that the FHA “poses a significant risk to taxpayers,” who already have agreed to pump as much as $200 billion into Fannie Mae and Freddie Mac, the government-chartered mortgage-finance companies taken over by regulators in September.
‘Full Faith and Credit’
The FHA, a HUD department that backs loans with down payments as low as 3.5 percent, has expanded to insure 21 percent of new single-family loans from 4 percent in 2005, Donovan said. The FHA insurance fund’s reserves have fallen to 3 percent from 6.5 percent a year ago, he said.
Ginnie’s focus is typically on the health and practices of the issuers of its securities, not the actual loans, a type of oversight it’s also increased, Murin said. The independent agency, funded by its guarantee fees, relies more on outside vendors including Deloitte & Touche LLP and Lockheed Martin Corp. than the FHA for help in risk management, he added.
The agency doesn’t now offer data on the performance of mortgages backing its main types of bonds. The securities are backed by the “full faith and credit” of the U.S. government. Delinquency and foreclosure information may help investors better understand how quickly their securities are going to be repaid.
“We think we can get better pricing if we provide the information,” Murin said.
Ginnie Mae also has revised rules involving buyouts of delinquent loans to improve demand, he said. Servicers can profit by purchasing FHA or Veterans Affairs loans at least 90 days late and with higher-than-market rates from Ginnie Mae securities for face value, and then reselling them within new bonds.
Ginnie Mae no longer allows the repooling of loans unless the borrowers are current, rather than just 60 days or less late, Murin said. Allowing some buyouts is necessary to offer flexibility to servicers to rework mortgages for troubled homeowners, he said.
This month, the agency also plans to begin offering data on the characteristics of loans underlying its securities at the time they are pooled and put into bonds, rather than “after the fact” when they have begun trading, Murin said.
Before becoming Ginnie Mae’s president last year, Murin was president of Mortgage Settlement Network, LLC, a Pittsburgh-based provider of loan settlement services and appraisals.