by Susan Graham
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“Lock in the MISMO Advantage,”
“Going Green in the Mortgage Industry,”
“Try on a Mortgage Niche,”
Susan Graham is president and chief operating officer of
Financial Industry Computer Systems Inc. (FICS), a mortgage
software company specializing in cost-effective, in-house
mortgage-origination, residential mortgage-servicing and
commercial mortgage-servicing software for mortgage
lenders, banks and credit unions. FICS’ software solutions
operate on Microsoft Windows platforms using Microsoft
.NET Framework and provide customers the flexibility to
choose an in-house or cloud-hosting solution. The company
also provides innovative document management and
web-based capabilities in its full suite of products. Reach
Graham at email@example.com.
Be Prepared for the GSE Road Ahead
Fannie and Freddie are evolving, and your business plans should reflect that reality
By Susan Graham
The federal tax overhaul passed late last year lowered the value of some tax-deferred assets on the books of government- sponsored enterprises (GSEs) Fannie Mae
and Freddie Mac. That, along with other factors affecting the mortgage industry, prompted the two GSEs
— which have been in a government-supervised conservatorship since 2008 — to draw money from the U.S.
Treasury in the final quarter of 2017, the first such draw
The GSEs experienced a combined comprehensive
loss of some $10 billion in fourth-quarter 2017, far exceeding the $3 billion capital buffer set up for each of
the GSEs. As such, Fannie Mae and Freddie Mac had to
draw a total of $4 billion from the Treasury to offset the
losses. The GSEs rebounded in the first quarter of this
year, but the prospect of potential future losses and
Treasury draws is a constant refrain and reminder of
the precarious position of the GSEs, which are a major
engine of the housing industry.
Consequently, GSE reform continues to be a topic of
hot debate within the mortgage industry. A number of
proposals for reform have been advanced by a variety of
interests, although none have yet gained enough traction among policymakers to result in any definitive
action. It seems GSE reform may still be a ways off as
more pressing industry issues take precedence — for
example, regulatory relief.
Still, the GSE reform push is a debate that mortgage professionals should follow closely. In addition,
as part of that process, they also must work to ensure
their loan origination systems and other software are
updated and on the cutting edge, and able to quickly
incorporate any major changes or reforms affecting
the GSEs, given the impact the GSEs have on daily business operations and the mortgage industry overall.
It’s no secret that GSE reform has been a divisive issue
among policymakers, depending on their constituency
and market philosophies. Just as there is among policymakers, disagreement among mortgage industry professionals when it comes to GSE reform exists as well.
Many lenders continue to sell and service GSE loans,
however, attesting to their continued support of the
GSEs’ work. Last year, for example, as a sign of their
recognition of the importance of the GSEs, a group of
small lenders, in conjunction with some well-known
affordable-housing groups, released a GSE-reform proposal that advocated changes many community lend-ers hope to see shape the future GSE landscape.
Some of the suggested reforms included rebuilding
the capital buffers for Fannie Mae and Freddie Mac, main-
taining the Federal Housing Finance Administration
(FHFA) as an independent regulator of the GSEs, pro-
viding fair access for lenders of all sizes and ending the
GSEs’ conservatorship status. In short, while lenders and
other industry experts have advanced a range of GSE
in the mortgage industry that the GSEs should not be
gutted or eliminated altogether.
Freddie Mac and Fannie Mae were originally established to provide lenders with more liquidity for lending. One of the major goals of the GSEs was to help
expand the U.S. homeownership rate.
Along with fulfilling the homeownership objective,
Fannie Mae and Freddie Mac also have implemented
many positive changes for mortgage professionals
through the adoption of technology. This has helped
to improve the efficiency and quality of both the origination and servicing processes.
The GSEs implemented the Uniform Closing Data-
set (UCD), for example, providing the industry with
a common set of data standards that facilitated the
electronic communication of closing disclosures and
the transmission of information between integrated
software platforms — which helps lenders operate
more efficiently and achieve better loan quality. Addi-
tionally, many lend-ers rely heavily on Fannie Mae’s
Desktop Underwriter (DU) and Freddie Mac’s Loan Prod-
uct Advisor. Theseautomated underwriting systems
have helped to improve collateral and data quality and
also allow lenders to provide greater flexibility and
options to borrowers.
On a related front, Freddie Mac and Fannie Mae have
established underwriting standards that have helped
mortgage professionals for years by improving the
underwriting process and facilitating quality loans and
the successful sale of those loans once closed. Even if
lenders ultimately decide to sell their loans to a private
investor, the underwriting guidelines and lending policies established by the GSEs still carry great weight.
The Ginnie difference
While also a GSE, Ginnie Mae differs from the quasi-government corporations Fannie Mae and Freddie Mac
in a few key ways. Unlike Fannie and Freddie, which are
the definition of the conventional-loan market, Ginnie
Mae is a federally owned corporation that is part of the
U.S. Department of Housing and Urban Development,
and it deals with nonconventional loan products — such
as home mortgages issued through the U. S. Department
of Veterans Affairs, the Federal Housing Administration
and the U.S. Department of Agriculture.
One of the most notable differences between Ginnie
Mae and the other two GSEs is that Ginnie Mae does
not buy or sell loans. Instead, Ginnie Mae guarantees
investors the timely payment of principal and interest
on mortgage-backed securities (MBS) underpinned by
federally guaranteed loans. Ginnie Mae’s portfolio of
outstanding MBS guarantees involves some 10. 7 million
loans, according to the GSE’s 2017 report to Congress.
Ginnie Mae securities also are backed by the full
faith and credit of the United States government. Fannie
and Freddie’s MBS issuances do not have that explicit
backing. Unlike Fannie Mae and Freddie Mac, Ginnie
Mae has never needed a government bailout. Ginnie
Mae, through its guarantees, helped to fund 1.4 million
single-family home purchases in fiscal year 2017, according to its report to Congress, attesting to its great benefit to the mortgage industry.
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