Five Star Government ForumMarch 25,2014

Ginnie Mae: Program Overview and Insights

Discussion Overview

• Ginnie Mae’s Role in the Market

• Housing Finance Reform

• Evolving Industry Trends

• Ginnie Mae Initiatives and Response

Overview

• U.S. Government-owned corporation within HUD

• Guarantee Mortgage-Backed Securities (MBS), which raise funding for virtually all loans insured or guaranteed by U.S. Government agencies (FHA, VA, USDA Rural Development)

– Only MBS backed by full faith and credit guaranty of the U.S. government– Ginnie Mae does not originate loans or issue MBS, and thus has no exposure to

credit risk

• Facilitate financing of diverse products:– Single-family: forward & reverse mortgages, manufactured homes– Multifamily: construction & permanent loans, hospitals, nursing homes, assisted

living facilities

• Outstanding MBS guaranteed volume of nearly $1.5 trillion– Monthly issuance of $20 - 30 billion

• Over 400 approved Issuers in program

− Ginnie Mae manages counterparty risk at the Issuer level

Ginnie Mae – Core Functions• Servicers and Issuers are

approved based on financial, management, and operational capacity.

• Infrastructure must support pools that include loans from multiple guarantors and loans being serviced by multiple servicers.

• A significant aspect of ensuring liquidity is acting as a conduit of information between servicers, guarantors, MBS investors, and policymakers.

• Establish non-guarantee fees for utilizing the guarantee and services of Ginnie Mae.

Establish Pooling Requirements for Ginnie Mae SecuritiesEstablish Pooling Requirements for Ginnie Mae Securities

Provide Infrastructure to Issue Sophisticated MBSProvide Infrastructure to Issue Sophisticated MBS

Approve and Monitor Servicers/IssuersApprove and Monitor Servicers/Issuers

33

22

11

Generate Loan Level Data for all loans in Ginnie Mae Pools at Issuance and Monthly

Generate Loan Level Data for all loans in Ginnie Mae Pools at Issuance and Monthly

44

Remit Interest and Principal to MBS InvestorRemit Interest and Principal to MBS Investor55

Generate Monthly Reporting on Ginnie Mae REMIC Securities as RequiredGenerate Monthly Reporting on Ginnie Mae REMIC Securities as Required

6 6

Coordinate with MBS Stakeholders to Ensure Maximum LiquidityCoordinate with MBS Stakeholders to Ensure Maximum Liquidity77

• A healthy financial institution that has generated positive earnings throughout the recent crisis, Ginnie Mae continued this trend in FY 2013 with a profit of $628.4 million.

• Ginnie Mae guarantees a portfolio of MBS backed by 9.1 million loans and nearly $1.5 trillion in current UPB.

• Annual portfolio growth has been averaging 12.24% since FY 2010.

• The portfolio composition consists by dollar volume of 69.7% FHA loans; 24.3% VA loans; and 5.8% RHS loans.

• The composition of pools issued in 2013 consisted of 61% FHA loans, 34% VA loans, and 5.5% RHS loans.

Ginnie Mae: Guaranteed MBS Portfolio Overview

Ginnie Mae & Fannie/Freddie Loss Waterfall Comparison

Fannie/Freddie with Risk-shareGinnie Mae

First Dollar Loss

Last Dollar Loss

LOSS

ES

Government Agency Credit

Enhancement*

Government Agency Credit

Enhancement*

Corporate Resources of

Issuer/ Servicer

Ginnie Mae

Relative Loss Position

$

First Dollar Loss

Last Dollar Loss

LOSS

ESHomeowner

EquityHomeowner

Equity

Fannie/Freddie

Relative Loss Position

$Private

Mortgage Insurance**

Private Mortgage

Insurance**

*VA covers the first 25% of the credit loss, USDA-RHS covers the first 90%, and FHA covers 100%. Coverage of foreclosure expenses vary by agency; uncovered expenses can be substantial **Private Mortgage Insurance (PMI) is only required for loans with > 80% LTV; loans with ≤ 80% LTV have no PMI***Private Credit Enhancement is the result of a recent FHFA mandate on GSE lending requiring risk-share

Private Credit Enhancement***

Homeowner Equity

Homeowner Equity

Comparison of MBS System Models

 Model Ginnie Mae GSEBipartisan Policy

Council (Proposed)

Issuer Lender GSE Lender

Credit Risk Holder FHA, VA, USDA/Lender GSE/PMI/Risk-Share Investor Private Entities

Nature of Govt. Guaranty Explicit Implicit Explicit

Govt. Guarantor Counterparty

Issuer/ServicerBorrower/

PMI/Risk-Share InvestorPrivate Credit Enhancer

Govt. Place in Loss Waterfall*

Fourth

Second/Third

(in case of PMI on loans w/LTV>80 or Risk-Share deal)

Third

Guarantors Supported by the Program

Four (FHA, VA, RHS, and PIH)

One Multiple

*See Preceding Slide

• The U.S. Government has had a significant role in the mortgage market going back at least 30 years

Government Support of Mortgages

Source: Federal Reserve

Single-Family Mortgage Market Share 1955-2013

TBA Market Overview

• To-Be-Announced (TBA) market was created in 1970s to support Ginnie Mae securitization & financing of government insured loans– Virtually all government insured mortgages are sold into the TBA market – sold

as part of MBS guaranteed by Ginnie Mae, Fannie Mae & Freddie Mac

• Facilitates forward trading of mortgages (delivery can take over three months, on average takes two months)

• Enables lenders to lock in rate for loan originations prior to actually originating loans

• Ginnie Mae has little operational risk through the TBA process.

• TBA securities have U.S. Government guaranty, which facilitates scale of market & fungibility of securities

• Ginnie Mae TBA provides a reliable and highly utilized conduit to the market.

Stylized TBA Transaction ExampleDay 1

Day 2 Through Settlement

Evolving Market: Ginnie Mae and GSE MBSMBS outstanding in billions

Sources: Fannie Mae and Freddie Mac Monthly Reports; Ginnie Mae data includes HECMs

Dec 2013: $2,804B

Dec 2013: $1,482B

Dec 2013: $1,622B

Overall Industry Context and Trends

• Volume Drop: Conventional and government mortgage lending have dropped significantly. In the last 9 months, Ginnie Mae’s monthly issuance volume has dropped from a high of $42 billion per month last June to a low of less than $23 billion per month in December 2013.

• Implications: Lender/Servicer financial viability issues

• Refi to Purchase Money Mortgage: In contrast to GSEs, Ginnie Mae MBS have contained a higher percentage of purchase money mortgages. As refi volume has decreased, Ginnie Mae’s relative market share has increased from 25% in CY 2012 to 31% in February 2014.

• Changing Issuer Profile: Litigation risk, regulatory risk, reputation risk, and Basel capital requirements have prompted Depository Institutions to shrink their servicing operations and through sale of MSRs to rapidly growing Non-Depository Institutions.

Change in Issuer Composition by Dollar Volume of Servicing

2010 Issuance Volume: $414 B

Top 10 Issuers Comparison, 2011 & 2014

Top 10 Issuers by Outstanding Servicing as of Feb. 2014

Issuer Rank

Issuer Name UPB % of Portfolio UPB

1 WELLS FARGO BANK, NA $420,655,223,418 31.7%

2 JP MORGAN CHASE BANK, NA $155,944,540,551 11.8%

3 BANK OF AMERICA, NA $117,011,541,853 8.8%

4 U. S. BANK, NA $52,736,873,688 3.9%

5 NATIONSTAR MORTGAGE, LLC $48,184,121,245 4.0%

6 LAKEVIEW LOAN SERVICING, LLC $33,727,476,332 2.5%

7 PENNYMAC LOAN SERVICES, LLC $33,481,587,994 2.5%

8 FREEDOM MORTGAGE CORPORATION

$32,231,265,775 2.4%

9 OCWEN LOAN SERVICING, LLC $29,753,915,201 2.2%

10 QUICKEN LOANS, INC $28,693,270,683 2.2%

Total Top 10 Issuers $952,419,816,740 72.6%

Total Ginnie Mae Single-family Portfolio:

$1,326,685,913,879

Top 10 Issuers by Outstanding Servicing as of Sept. 2011

Issuer Rank

Issuer Name UPB % of Portfolio UPB

1 WELLS FARGO BANK, NA $334,218,512,030 29.8%

2 BANK OF AMERICA, NA $315,768,619,002 28.2%

3 JP MORGAN CHASE BANK, NA $102,983,003,938 9.2%

4 GMAC MORTGAGE, LLC $46,662,945,083 4.2%

5 CITIMORTGAGE, INC $41,106,617,883 3.7%

6 U. S. BANK, NA $38,525,869,511 3.4%

7 PHH MORTGAGE CORPORATION $26,437,504,266 2.4%

8 FLAGSTAR BANK, FSB $20,293,227,800 1.8%

9 PNC BANK, NA $18,345,896,742 1.6%

10 SUNTRUST MORTGAGE, INC $17,986,640,183 1.6%

Total Top 10 Issuers $962,328,836,438 85.8%

Total Ginnie Mae Single-family Portfolio:

$1,121,090,272,175

Issuance Share by Government Agency (Dollar Volume)VA has been a growing proportion of our issuance; ~35% in CY 2013

• VA has been a growing proportion of our issuance; ~35% in CY 2013

Issuance Share by Government Agency Loan Dollar Volume

*Through November

Ginnie Mae Modernization Initiative

• Modernized securitization platform for loan pooling, securities issuance, data validation & disclosures distribution

• Our platform processes approximately $20 Billion in monthly payments on the 9 million loans in our MBS and distributes funds to investors.

• Creates new MBS for 110,000 – 130,000 new loans each month.

• MISMO Implementation and Leadership

• Leading federal government in implementation of MISMO adoption

• Publication of loan-level data disclosures for 2013 & 2014

• Loan-Level data for new Single-Family loans released August 2013

• Loan-Level data for existing Single-Family loans released December 2013

• Publish over 34 million pool-level & 327 million loan-level data points a month

• Targeting Q3 2014 for release of HMBS Enhanced Pool Disclosure and Phase II of HMBS loan-level disclosures.

Ginnie Mae Initiatives• Acknowledgment Agreements

• The use of Acknowledgement Agreements allows mortgage lenders to pledge their Ginnie Mae mortgage servicing rights in order to gain access to liquidity and to meet capital structure strategies.

• Ginnie Mae I and Ginnie Mae II Modernization

• Evaluating the merger of the Ginnie Mae I and Ginnie Mae II programs to enhance market liquidity.

• FHLB Chicago Conduit Issuer Project• FHLB Chicago is a Ginnie Mae Issuer, will buy loans from PFIs, aggregate

them & through Ginnie Mae deliver them to investors • PFIs will have the option to retain or sell servicing on loans

• Coordination Among Government Housing Agencies

• Joint federal housing agencies including FHA, VA, RHS, FHFA, CFPB now meeting regularly to discuss housing policy, risk issues, and best practices.

Summary

• Ginnie Mae is:– Delivering on its mission to support the government housing

programs with over 98% of government housing loans in Ginnie Mae MBS.

– Making money for the government and supporting the housing programs with a minimum of risk.

– Exercising leadership in standardization activities like MISMO and in making more information available to investors.

– Responding to the needs of our industry with funding mechanisms and collaborative pilot programs to continue to find ways to support American homebuyers and renters.