There is a long investigative piece in the Washington Post on Ginnie Mae, titled Mortgage agency’s growth gives fuel to risky lenders.
“More than a dozen lenders with Ginnie’s endorsement have made loans that are now delinquent at rates far in excess of what regulators consider acceptable. And some of these lenders have been accused of misleading both borrowers and the government about these loans.
Created more than four decades ago to help expand homeownership, Ginnie Mae works in the guts of the financial system, offering a secondary layer of government insurance that helps make it easier for mortgage lenders to provide financing for home buyers. The first layer of government backing comes primarily from the Federal Housing Administration, which principally seeks to help first-time home buyers who have impaired credit or little money for down payments. The FHA insures the mortgages made to these borrowers, promising that the lender will ultimately be repaid if the borrower defaults. The FHA has the primary responsibility for monitoring the lenders.
Then Ginnie Mae enters the picture. Mortgage lenders often want to bundle the loans they’ve made into securities and sell them to investors. Ginnie Mae guarantees those securities, ensuring that investors continue to get their principal and interest without interruption if any of the loans go bad or lenders are otherwise unable to make payments to investors. This additional insurance makes the securities easy to sell, generating new cash for lending.”
Ginnie Mae has evolved into a monsterously large portion of the otherwise nonfunctioning mortgage securitization market. In 2009, Ginnie Mae guaranteed “nearly one in five new mortgages” that were securitized.
Note that there are huges differences between the current issues at Ginnie Mae, and the erroneous blame heaped upon Freddie and Fannie for the credit crisis and the subsequent collapse of the economy. Do not conflate the two: By the time Fannie was involved in sub-prime securitization, it was all over but the crying.
The Ginnie Mae issues discussed are new, and are part of the misguided Fed/Treasury attempt to get the Housing market moving again . . .
Mortgage agency’s growth gives fuel to risky lenders
Brian Grow and Zachary A. Goldfarb
Washington Post, December 10, 2009
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