Mortgage Banking
November 2008
Industry veteran Joseph Murin has taken the helm of Ginnie Mae at a very critical time for the mortgage business.
By Robert Stowe England
Ginnie Mae has been a rising star in the mortgage firmament since last summer, about the time a new president, Joseph J. Murin, took the helm of the government agency and Federal Housing Administration (FHA) loan volume started to surge. Ginnie Mae mortgage-backed securities (MBS) are backed by the full faith and credit of the U.S. government, and Ginnie Mae is part of the Department of Housing and Urban Development (HUD).
Murin was sworn in July 7 by HUD Secretary Steve Preston. He previously served as managing partner of the Mortgage Settlement Network LLC, Pittsburgh, where he developed and executed the firm's business strategy. He served as managing partner-and was also an 85 percent shareholder-of the company from March 2004 to August 2007, when he sold it.
Murin previously worked for Basis 100, Toronto, Ontario, first as company president and chief operating officer in 2001 and then as chief executive officer in 2002, and continued there until March 2004. Basis 100 is a technology company responsible for the development of the Canadian Bond trading system, as well as an automated valuation model (AVM) offering that is currently being used in the U.S. real estate market.
Murin has served as president of Century Mortgage Co., a subsidiary of Standard Federal Savings and Loan, Gaithersburg, Maryland, and regional president of American Pioneer Savings, Orlando, Florida.Murin holds a bachelor's degree in business from Chicago-based National-Louis University's Arlington, Virginia, campus. He and his wife, Angela, have two married daughters and three grandchildren.
Mortgage Banking caught up with the agency's new president in late September, at Ginnie Mae headquarters overlooking the Tidal Basin in southwest Washington, D.C., and asked him about Ginnie's renewed role in the mortgage securities market.
Q: The expanded role of Fannie Mae and Freddie Mac, with their share of the market rising for 11 months, began to fall back in July. Since then, FHA and Ginnie Mae have moved in to take a much bigger role in order to keep mortgage finance flowing to the struggling housing market.
A: So, we're like the last girl at the dance.
Q: Could you describe Ginnie Mae's role now in the housing market?
A: We've been here for 40 years, and we've taken each and every one of those 40 years to play some role within the mortgage finance industry, working in tandem with FHA.
We've been a very profitable corporation. We are a wholly owned corporation of the federal government, and we are a profit center. So, there's been really no time in [Ginnie Mae's] 40-year history that we have needed to be funded by Congress. It's a very quiet, financially sound institution. So, when you look at what's happening in the market - the market says we need you to step up, and Ginnie Mae has been able to step up. FHA steps up and Ginnie Mae steps up. [In August, for example,] we were 40 percent of [the] fixedincome issuance market. We're probably close to 35 percent of [overall total MBS issuance] . . . and that's a pretty significant role. [W]e were there yesterday. We're here today. And we're going to be here tomorrow. And I think that's the good thing about Ginnie Mae. It's one of those organizations founded on pure fundamental [blocking and tackling]. We're a very basic institution. And I think in today's market, that's a very good thing. We're the model of the future, if you will.
Q: You may not want to comment on Fannie Mae and Freddie Mac - but some argue that if they had not gotten involved with holding mortgage-backed securities [MBS in portfolio], they would not be in the bind they are today. What's your view?
A: It's hard for me to comment on Fannie and Freddie. I have enough responsibility looking out for Ginnie Mae, making sure we continue to follow our sound, basic practices. Any institution that has been around that long and has been that viable - there's something that's working. I like to point out to people that it is purely the fundamental business practices of this institutionpractices [that] day-in and day-out we continue to enhance. As our volume grows, we have continued to enhance our risk-management capabilities, our issuer-oversight capabilities. We use a lot of analytical tools to do that. And we use our third-party outsource partners, and together we have created a business model that is variable-cost in nature - and it allows us the flexibility to grow our book of business even at a rapid rate, utilizing as much analytical-tools technology and our third-party partners as much as possible.
Q: What are the aspects of Ginnie Mae's business model that make it so strong?
A: The first thing we don't do is, we don't buy and sell loans. And we don't have a portfolio. We just guarantee our issuers' securities. So, we have a little bit of advantage because we are limited in scope. But we still have a great deal of risk we have to manage on a day-to-day basis, relative to issuer risk and borrower risk, in some regards.
The aspect of the business model that I like is that we are variable-cost. We're very, very nimble. When you don't have a lot of fixed costs, you find yourself in the position that you are not overburdened with costs if the market moves in a different direction. And since we are so market-driven, and because we are part of the federal government, we don't have certain advantages the private sector does. Therefore, we have to be more flexible, more nimble, and we certainly want to be as variable-cost as we possibly can.
So, I think the business model is to be as nimble as you possibly can ... be as variable-cost as you can. There's nothing wrong with finding good, solid partners in the marketplace to work with and help you drive the business model.
Q: Who are the partners you are talking about - the issuers?
A: No, the partners I'm talking about are our outsourcing partners. We use folks like Deloitte [& Touche LLP, Washington, D.C., for data collection and data processing]; and Lockheed [Martin, Bethesda, Maryland] for our analytics; and we have Bank of New York [Mellon, New York], that does all of our processing. We have institutions that are our custodians and our trustees. Ernst & Young [Washington, D.C] does a lot of our REMIC [real estate mortgage investment conduit] structured finance work for us. And so we have a lot of business partners that help us with our business model.
Q: They can expand and reduce their resources as you need them?
A: Exactly right. And it gives us more time to spend managing our outsourcing partners, as well as paying more attention to our pure risk and those anomalies and exceptions that you see day-in and day-out. We don't want to get too far down in the weeds every day. What we want is to have a 360-degree view of our organization on a day-to-day basis.
Q: What about the sustainability of your large market share?
A: Well, I've always said that I think that the right balance - and I'm going back 36 years in this business - has always been 70 percent conventional private [market, which includes the government-sponsored enterprises (GSEs) and private-label MBS], 30 percent government. And I think if Ginnie Mae can sustain that kind of share going forward, I think that's a good balance for our mortgage market.It means that our mortgage origination marketplace is utilizing all the available product tools that it has available [for lenders] to run their business and are not necessarily looking for the path of least resistance. We're not trying to have the biggest market share. Today we have to step up because the market needs us. We have the flexibility to step up, and we're willing to step up. But sustainability? I don't see the mortgage market dismantling [its] government infrastructure like [lenders did] over the last 10 years or so. I think they're going to maintain it. I think it's going to be part of business strategy.
You know, FHA has a very attractive program, with the new legislation [that kicked in] on Oct. 1 that provides a $625,000 cap [on loan limits]; FHA is going to be even more attractive to the marketplace even if Fannie and Freddie loosen up some of their lending requirements. So, all in all, if we need to step up to 40 percent or 50 percent [of the market], we'll do it. If we can maintain 30 percent, we'll be happy. I think we're here to support the marketplace. Whatever the marketplace needs or asks of us, I think we have to be in a position to step up to the plate.
Q: Ginnie Mae released an annual report.
A: Yes, it's online [at www.ginniemae.gov/about/ ann rep.asp?subtitle=about[. [During fiscal year 2007 (Oct. 1, 2006-Sept. 30, 2007),] we made about $700 million net. You have to remember, we have 61 full-time people who [helped Ginnie Mae earn in fiscal year 2007] a little more than $700 million, so on a per-capita basis that's pretty strong.
Q: What about this year?
A: [T]his year we'll probably be as much as 20 percent higher. We're looking for a really strong year [with results reported in November]. As of the end of last fiscal year 2007, we had $13.5 billion in retained earnings. We carry about another $600 million on our balance sheet in the form of non-specific reserves. Our balance sheet is probably 90 percent cash or securities. All of our retained earnings are held in Treasuries, so we don't take any risk. We're in a relatively strong financial position today.
Q: Obviously, given that, the seller-financed, third-party downpayment-assistance [DPA] mortgages that FHA has been so worried about have not made a dent in your profitability. You're guaranteeing securities backed by those kinds of mortgages, and they have become a larger and larger percent of FHAs business.
A: Well, that [step to eliminate DPA loans was] done as of Oct. 1. I think that was the right thing to do. I was happy to see that Congress eliminated seller-financed down-payment-[assistance loans]. I'm an old-school type of lender who believes that someone has to have skin in the game. [Providing] 100-percent financing is not the way to lend money, especially on an asset like a mortgage. It is having an effect on FHA, as [FHA Commissioner] Brian Montgomery has said. It is a higher percentage of their delinquencies.
Ultimately, even though the loan itself is guaranteed in our pools . . . we still have to make sure the loan is insured and we have to make sure there isn't any interruption in the cash flow to the bond holders. So, if you have pools that have a high degree of seller-financed transactions, that's only going to mean the delinquencies are higher. Our issuers have to come up with the pass-through [amounts to pay security holders] or Ginnie Mae has to step up and guarantee the pass-throughs. We're happy to see the seller-financed portion [of FHA lending come to an end].
Q: So have the issuers been able to make their pass-throughs?
A: We've had to step up on a couple occasions this year. I think there were four occasions on four smaller issuers where we had to step up. Predominantly, it's been very manageable.
Q: How would you assess the state of the housing market? The key to everything now seems to depend on the state of the housing market.
A: You know, you're absolutely correct. I'm probably more bullish on it than most people. I was around long enough to see us go through housing downturns [of the past], when the West Coast went through [its] problems in the mid-1980s and the Oil Patch went through [its] problems in the late 1980s and early 1990s. We had these geographic problems that were accelerated because of the high unemployment rate, at least in New England. [Today] if you look at a map of the United States, you have the OFHEO [Office of Federal Housing Enterprise Oversight] Index [for home prices showing a] negative 5 percent, and you have the Case-Shiller Index at about a negative 15 [percent].
OFHEO looks at the whole country, but only looks at conventional-size loans. Case-Shiller looks at all loans, but they only look at about 70 percent of the country. So, if you look at Texas, or the square states - that Midwestern corridor [like, say,] Pennsylvania - we're looking at a year-over-year of about zero to plus5 [percent in home-price growth]. We're looking at about 16 states that are zero to a minus-5 [percent in price growth].
We're looking at three states primarily - California, Nevada, Florida - [where we see] higher House Price Index [HPI] negativity along with parts of Arizona. So, I think we have a good foundation to build off of. You take a state like Pennsylvania, where I'm from. We appreciate maybe 1 [percent] to 3 percent a year, but we never depreciate - even in bad times. So, it's kind of steady-as-she-goes. And I think a lot of states are like that, unless there is some anomaly that occurs. Ohio and Michigan have this manufacturing anomaly that's causing them so much pain. So, I don't necessarily think the whole country, state by state, has an HPI issue. I think there are pockets of [home-price declines]. It's a big issue in a lot of states. But I think we have a foundation to build off. Unless we see unemployment rise to 7 percent or more, then I think all bets are off. Are we at the bottom yet? I'm not that smart. I don't know if we are at the bottom. But I think we have a lot of reasonably solid housing markets in the United States that we can build off of and start turning [things around].
Q: What are the risks posed for Ginnie Mae by FHA's reversemortgage program?
A: I personally am a proponent of the reverse-mortgage capabilities. I'm very happy FHA has gotten involved with the reverse-mortgage business, and I'm ecstatic that Ginnie Mae has security programs that allow the reverse mortgages to be sold into the marketplace. I like the reverse-mortgage instrument. I don't think we've had a lot of traction with it to date, because I think we are still dealing with a generation that doesn't understand it and wouldn't think to do it even if they thought it was a good idea. I'm talking about my father's generation.
My generation-I'm at the edge of the baby boom generation that probably looked at their home as a leveraged asset. But, more importantly, as I think [huge numbers of] baby boomers move into retirement . . . more and more folks are going to be eligible for reverse-mortgage opportunities. I think my generation and maybe the generation after us has a lot more issues to deal with. Most in my generation do not have defined benefit pension plans. Most of my generation is probably on the cusp of 401 (k) type of retirement programs. Most of my generation is facing health-care issues. They don't have health care for life like my father's generation. My father was with the same company for 47 years. You don't see that anymore.
So, I think my generation is going to be using the equity in their homes to support their retirement and to support health care and to support the longevity they may have and even help support their parents' longevity. The longer we live as a nation, the more costly it becomes. So, I think [the reverse mortgage] is an instrument that has probably come along during a time [that] we see it being a necessary tool for survival. We haven't seen that play out. But that's just my take.
Q: Does the reverse mortgage provide a stream of income for the homeowner?
A: It is more of an annuity-based income for the investors when we securitize them. However, we are working on a new instrument right now that will allow us to put forward the transaction pools with the reverse pools so there is a blend of cash flow and annuity [for investors]. That might have a different appeal to some investors. So it's not just all annuity-driven instruments. There is going to be cash flow mixed with annuities. So, it's going to be a different kind of instrument we're going to be offering the marketplace as well.
Q: How does this work for the borrower?
A: The borrower is saying, "I want a line a credit," but there were caps. There was a $200,000 cap on this [before Oct. 1], so they could get as much as $200,000 in a line of credit, taken out over a certain period of time. In some areas, you could have a house worth $800,000 and they [still] could only take out $200,000. [Since the caps were raised, lines of credit can go up to $417,000.] The thing that I like about the FHA program is that there is counseling involved. You meet with the homeowner to make sure they understand what they are getting into, that there is no repayment of principal and interest [until] some life event occurs - you die or sell your property, or whatever that may be. So it's an interesting tool that the market buys, and I think it's timely. Like I said, I think the timing of it is appropriate for this next generation.
Q: I've noticed there has been a lot of advertising for this product.
A: Wells Fargo [Home Mortgage, Des Moines, Iowa] is a big advertiser of the reverse-mortgage program - a big, big player in the reverse-mortgage market. They really like that product line.
Q: Ginnie Mae has become less-well-known than other players in the MBS market.
A: Ginnie Mae is not talked about very much. Historically, you [did not] hear it mentioned [as much as] Fannie or Freddie or even FHA. But fundamentally, FHA and Ginnie Mae have to work in tandem. It's good for your readers to understand. You probably have a lot of readers in the mortgage industry who don't even remember government lending, because they came into [the mortgage business at a time] when government lending was not in vogue.
Q: What are your thoughts on the $700 billion Treasury package?
A: I actually look at it as an investment in America's future. The financial marketplace is so intricately entwined that it will have such a significant impact on every American. I think this investment is the right thing to do.
Q: The final law has a proposal from House Republicans to allow Treasury to set up a Ginnie Mae-kind of insurance for mortgage-backed securities not currently guaranteed. The participants would pay a premium for that.
A: [Ginnie Mae's premium] is 6 basis points right now. If the administration wants Ginnie Mae to participate, we're ready and able to do so.
Copyright (c) 2008 Mortgage Bankers Association of America. Reprinted with Permission.
