Foundation in place for housing revival, says Ginnie Mae boss

With more Americans going back to work, the housing market is improving, according to an executive at a government agency that supports mortgage-linked securities.

“As unemployment continues to firm up, housing will firm up along with it,” Theodore Tozer, president of Ginnie Mae, said Monday after a presentation at the Financial Industry Regulatory Authority Inc. conference in Washington. “Housing prices are stabilizing – and in some areas rising.”

The unemployment rate has fallen from a high of 10% in October 2009 to 8.1% last month, according to the Bureau of Labor Statistics.

As the housing market heads north, traditional lenders are retreating to the sidelines, according to Mr. Tozer. He said that banking giants, such as Bank of America, SunTrust and JPMorgan Chase and Co., are less willing to extend home loans because of increased capital requirements imposed by international agreements.

“You’re seeing banks pull back and not be as aggressive,” Mr. Tozer said.

Private equity firms are among the institutions stepping into the void, which is creating challenges in analyzing counterparty risk, Mr. Tozer said.

He spent a good part of his Finra remarks explaining exactly what his agency does. Ginnie Mae, he noted, provides a government guarantee for the mortgage-backed securities that banks issue. The agency charges six basis points for the insurance, allowing the banks to lower their interest rates by 150 to 200 basis points.

Unlike Fannie Mae and Freddie Mac, the traditional mortgage lenders, Ginnie Mae does not buy loans from home buyers or step in if they default. Ginnie Mae is only on the hook if the big banks go under, putting it in a fairly safe position.

The securities backed by Ginnie Mae have climbed from $400 billion before the 2008 housing crisis to $1.3 trillion today. Mr. Tozer said that his agency has turned about a $4 billion profit for the government since 2008.

Despite that track record, Ginnie Mae is not well known – even on Capitol Hill. When Mr. Tozer recently testified in a congressional hearing, a lawmaker referred to him as the “mystery witness.”