Let lessons of the past shape a more equitable housing finance system

The Government National Mortgage Association, better known as Ginnie Mae, recently updated the minimum financial requirements for independent mortgage bank (IMB) issuers. In the wake of that announcement, we’ve heard a lot of arguments — publicly and privately — that conflate prudent risk management with restricting access to credit.

I decided to write and address this misconception head on. Anyone who was working in this industry during the Great Recession of 2008 knows that there is no access to credit without a diversified source of mortgage lenders. Broad access to credit is sustained by prudent capital standards.

Households and communities that rely on Ginnie Mae’s insuring partners (the Federal Housing Administration, the U.S. Department of Agriculture, the U.S. Department of Veterans Affairs and the U.S. Department of Housing and Urban Development’s Office of Public and Indian Housing) are among the most vulnerable and historically underserved borrowers in our country.

Our experience from recent crises has confirmed that a housing market downturn inflicts harm on these communities first, impacts them more deeply, and they’re frequently the last to recover. This fact underlies why we have seen continued and deep divides in racial homeownership and wealth gaps. Our recent update to our standards is informed both by this experience and our unique role in the housing finance system and prioritizes alignment with other key agencies that govern IMBs, including the Federal Housing Finance Agency and the Conference of State Bank Supervisors.

For starters, Ginnie Mae is, by its nature, a social enterprise and, with over $2.2 trillion in guaranteed securities, is one of the largest and most successful in our nation’s history. Our charter requires us to provide stability to the secondary market, respond to trends in the private capital markets and ensure access to affordable mortgage credit for all Americans — with an emphasis on historically underserved communities.

This complementary set of goals acknowledges that addressing the credit needs of American families nationwide means ensuring that borrowers can depend on reliable, low-cost access to credit across economic cycles. In other words, we have a responsibility to promote the resilience of the housing finance system for the benefit of the borrowers and renters our insuring agency partners and issuers. This priority informs our work with our issuers and other key stakeholders to manage risk in the housing finance system.

Before the 2008 financial crisis, Ginnie Mae had a $600 billion guaranteed mortgage-backed securities (MBS) portfolio, with most of our issuance coming from regulated depository institutions, i.e., banks. Since the financial crisis, our portfolio has steadily grown and the makeup of issuers has completely flipped. Our growth has come primarily from issuance by independent mortgage banks. IMBs now issue over 90% of Ginnie Mae MBS each month.

The evolving issuer and servicer profile requires an evolution in the way Ginnie Mae manages risk. When banks accounted for most of our issuance, Ginnie Mae could incorporate the oversight by prudential regulators into our own counterparty risk assessments. Ginnie Mae has spent over a decade building a strong counterparty risk management program that’s adapted to our evolving issuance profile to ensure we can keep liquidity flowing into the housing finance system while protecting taxpayers from systemic failures.

IMBs play a consequential role in the system and have been instrumental in ensuring the continued availability of government mortgages over the past decade. Ginnie Mae staff and leadership are regularly engaged with issuers and understand their business profiles and the risks they face in the current market. We have used that expertise and experience to create tailored standards that are workable for IMB issuers and mitigate risk. In fact, the vast majority of our issuers already meet the updated requirements.

Our engagement with IMB issuers has only confirmed the centrality of their role in helping us meet our mission to serve the underserved. Use of risk-based capital requirements helps ensure this continued access to capital and liquidity for IMBs and will allow them to continue lending to borrowers and financing the critical loss mitigation efforts that support homeowners who may experience hardships.

This brings me to a critical point that drives how we finalized our recent financial standards: Prudent risk management promotes continuous access to credit. We need viable healthy institutions to provide access to affordable financing. Some in our industry have extolled a false notion that there is a choice between sustainable access to credit and risk management. This is a false choice. Appropriately tailored risk management preserves access to credit for underserved areas. Our statutory charter obligates us to promote a safe and sound housing finance system for the benefit of both market participants and consumers.

We affirmed a hard truth in 2008. Lower-wealth communities, especially Black and brown households, suffer first, more deeply, and find the path to recovery more arduous than others after a financial downturn. Given our inherent social mission and focus on a more equitable housing finance system for all Americans, this lesson is front and center as we shape the future of Ginnie Mae.