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Congressional Justifications for 1998 Budget EstimatesGovernment National Mortgage Association
|
Actual 1996 | Budget estimate 1997 | Current estimate 1997 | Estimate 1998 | Increase + Decrease - 1998 vs 1997 | |
---|---|---|---|---|---|
(Dollars in Thousands) | |||||
Program levels Single-Class MBS |
|||||
Commitments: |
|||||
|
$130,000,000 | $110,000,000 | $110,000,000 | $130,000,000 | +20,000,000 |
|
110,000,000 | 110,000,000 | 110,000,000 | 130,000,000 | +20,000,000 |
Guarantees: | |||||
|
101,540,000 | 81,575,322 | 79,559,719 | 75,798,807 | -3,760,912 |
|
497,432,808 | 498,951,148 | 533,333,270 | 563,666,540 | +30,333,270 |
Guarantee Fees | 305,249 | 312,387 | 311,471 | 314,423 | +2,952 |
Advances to Investors | 128,652 | 366,465 | 144,370 | 115,559 | -28,811 |
Default Expenses | 8,305 | 9,093 | 9,040 | 8,950 | -90 |
Multiclass a/ | |||||
Guarantees: | |||||
|
19,750,000 | 21,000,000 | 17,400,000 | 17,400,000 | ... |
|
36,007,029 | 65,474,325 | 53,407,029 | 70,807,029 | +17,400,000 |
Guarantee Fees | 10,756 b/ | 22,152c/ | 22,152 | 22,152 | ... |
Credit Reform | |||||
Program Account: | |||||
|
9,101 | 9,383 | 9,383 | 9,383 | ... |
|
9,101 | 9,383 | 9,383 | 9,383 | ... |
Liquidating Account: | |||||
|
... | ... | ... | ... | ... |
|
-571,375 | -476,200 | -579,876 | -562,031 | +17,845 |
Financing Account: | |||||
|
... | ... | ... | ... | ... |
|
-34,746 | -26,483 | -22,704 | ... | +22,704 |
a/ Separate commitment authority will not be required for the Multiclass securities. (See program description.) | |||||
b/ Represents actual fees collected after deduction for deferred income calculation. | |||||
c/ Represents estimated fees collected before deduction for deferred income calculation. |
Summary of budget estimates
The Budget proposes a limitation on new commitments for single-class mortgage-backed securities (MBS) of $130 billion for fiscal year 1998. This request is based on FHA and VA estimates of mortgage insurance and guarantee activity.
In fiscal year 1997, it is expected that $17.4 billion of Multiclass securities will be guaranteed. Since all Ginnie Mae guaranteed Multiclass securities will be based on and backed by mortgage-backed securities issued pursuant to commitment authority, separate commitment authority will not be required for the Multiclass securities. In addition, an appropriation of $9.4 million is proposed to fund administrative expenses.
Ginnie Mae issued $110 billion of commitments in fiscal year 1996 and $64.2 billion in fiscal year 1995. Guarantees issued were $101.5 billion in fiscal year 1996, representing an increase of $37.8 billion over the $63.7 billion of guarantees issued for fiscal year 1995.
During fiscal year 1996, Ginnie Mae experienced additional issuer defaults forcing it to assume the issuers' responsibilities. These additions to Ginnie Mae's servicing portfolio amounted to approximately $61 million. Nevertheless, the total end-of-year servicing portfolio decreased by $981 million from $1.7 billion at September 30, 1995 to $686 million at September 30, 1996. The additions to the portfolio will more than offset the reduction resulting from the sale of servicing rights on the multifamily and single family portfolio, normal amortization, and other terminations of the outstanding loans. Ginnie Mae estimates that it may be required to take over the servicing of an additional $5 billion in loans because of issuer defaults between 1997 and 2002.
Ginnie Mae's single family servicing portfolio decreased as a result of Ginnie Mae's selling servicing rights on portfolios with outstanding principal balances of $3.9 million in fiscal year 1996. In fiscal year 1996, Ginnie Mae's single family servicing portfolio experienced an additional default of approximately $60 million. Additional single family defaults of $4.8 billion are anticipated through fiscal year 2002. Future losses on the single- family portfolio are expected to reach $150 million for fiscal years 1997 through 2002. Potential single family-defaults are largely due to prior fluctuations in regional economies.
In the multifamily program, Ginnie Mae sold servicing rights on $3.7 million of projects outstanding in fiscal year 1996. The net effect of these transactions (less projects submitted to FHA) decreased the end-of-year portfolio from $453 million at September 30, 1995, to $38 million by September 30, 1996. In 1996, there were no multifamily defaults. Defaults of $3 billion are anticipated through 2002. Ginnie Mae will be fully indemnified by FHA on multifamily foreclosures except for administrative, assignment, and extraordinary costs. Losses from the multifamily portfolio expected to reach $56.7 million.
Ginnie Mae's manufactured housing servicing portfolio had defaults of $878 thousand in 1996. The end-of-year portfolio amounted to $332 million. Losses from the mobile home portfolio are expected to reach over $265 million for fiscal years 1997 through 2002. Ginnie Mae has also placed a moratorium on new issuers coming into the manufactured housing underlying program until the program can be properly evaluated and restructured.
Ginnie Mae's strategy with respect to the management of acquired
servicing is to stabilize and ultimately sell the portfolio
at market value. When Ginnie Mae defaults an issuer, it assumes
the issuer status and assigns subservicing of the acquired portfolio
to a contract subservicer. With the assistance of the subservicers,
Ginnie Mae manages the individual pools by improving collections
on delinquent loans, filing claims with FHA and VA on defaulted
mortgages foreclosed properties and modifying loans in manufactured
housing pools. Where possible, the pools are then packaged for
sale of the servicing rights of the portfolio.
Changes from 1997 Budget Estimates
Fiscal year 1997 Estimates
Budget estimate | Current estimate | |
---|---|---|
(Dollars in Thousands) | ||
Advances to Investors | $366,465 | $144,370 |
Guarantees Issued in Year | 81,575,322 | 79,559,719 |
Net Outlays (Liquidating Account) | -476,200 | -579,876 |
Explanation of Increase and Decrease
The fiscal year 1997 current estimates of guarantees issued decreased by $2 billion due to a projected slight increase in interest rates. Advances to investors in fiscal year 1997 current estimate decreased due to a decrease in Ginnie Mae's defaulted portfolio balance from $1.7 billion at September 30, 1995, to $686 million at September 30, 1996. The increase in net receipts in the liquidating account is mainly attributable to a $2.2 million decrease in advances and a slight decrease in defaulted expenses.
Program Description
This program facilitates the financing of residential mortgage loans insured or guaranteed by the Federal Housing Administration,(FHA) the Department of Veterans Affairs (VA) and the Rural Housing Service. Funds are provided through investments in long-term securities guaranteed by Ginnie Mae which are backed by pools of such mortgages. The investment proceeds are used in turn to finance additional mortgage loans.
Institutions which originate and service mortgages (such as mortgage companies, commercial banks, savings banks, and savings and loan associations) assemble pools of mortgages and issue securities backed by the pools.
Investors in Ginnie Mae securities include mortgage investors, pension and retirement funds, life insurance companies and individuals.
Ginnie Mae currently guarantees modified "pass-through" type securities. Modified pass-through securities provide payment to registered holders of interest plus the monthly installments of principal due on the pooled mortgages, whether or not collected, plus any additional principal collections.
Separate pass-through programs have been developed to finance single family homes, multifamily projects and manufactured housing. Ginnie Mae first issues a "commitment" to the prospective securities issuer indicating that the firm meets Ginnie Mae's eligibility requirements. After Ginnie Mae issues the commitment, the issuer can begin to assemble mortgage pools and issue securities. Securities are issued with minimum face amounts of $25,000 and increments of $5,000 thereafter which have the same aggregate face amount as the aggregate unpaid balance of the pooled mortgages and bear interest at the rate borne by the mortgages--less the amount of issuer servicing fees and Ginnie Mae guarantee fees. Ginnie Mae's credit risk in this program is limited by mortgage insurance provided by Government agencies with respect to all pooled loans.
Ginnie Mae's Multiclass securities program guarantees Real Estate Mortgage Investment Conduit (REMIC) and Ginnie Mae Platinum securities. A REMIC security is backed by a pool or trust composed of mortgages or mortgage-backed securities (MBS). The REMIC issuer issues certificates of interest to investors and elects to be taxed under the REMIC provisions of Federal tax law (Sections 860A through 860G of the Internal Revenue Code of 1986). REMICs are multiple class securities with different maturities, typically between 2 and 20 years, or with payments based on fractions of the MBS income stream. This multiple class characteristic is what largely distinguishes REMICs from sin l ssass Mortgage-Backed Securities of the kind that Ginnie Mae has been guaranteeing since 1970. The Ginnie Mae Platinum security consolidates Ginnie Mae MBS pools with the same interest rate into larger pools which are sold to investors by securities dealers. Ginnie Mae, under its Multiclass securities program, will guarantee only securities based on and backed by mortgage-backed securities guaranteed by Ginnie Mae. Since all Ginnie Mae guaranteed Multiclass securities will be based on and backed by MBS issued pursuant to previously issued commitment authority, additional commitment authority will not be required for the Multiclass securities.
In fiscal year 1998, Ginnie Mae is proposing additional products and product enhancements in its Multiclass Securities program. In addition to generating new revenues for the Federal government, the introduction of the proposed products and enhancements will have the following programmatic benefits: helping to lower interest rates for the homebuyer, increasing Ginnie Mae's ability to meet investor needs, allowing Ginnie Mae to react quickly to changing conditions, and assuring a broad investor base under varying conditions.
Ginnie Mae started the Targeted Lending Initiative on October 1, 1996. The targeted lending initiative was developed by Ginnie Mae in support of its statutory purpose and the national homeownership strategy announced by the President and the Secretary. It is consistent with Ginnie Mae's statutory purpose to promote access to mortgage credit in the central cities by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing.
Program Activity
During fiscal year 1996, the Ginnie Mae guaranteed securities totalled $101.5 billion. Additional guarantees of mortgage-backed securities are estimated at $79.6 billion in fiscal year 1997 and $75.8 billion in fiscal year 1998.
The changes in the outstanding principal balance of securities for fiscal years 1996, 1997, and 1998 are shown in the following table:
Actual
1996
|
Estimate
1997
|
Estimate
1998
|
|
---|---|---|---|
(Dollars
in Thousands)
|
|||
Securities Outstanding, start of year | $463,848,299 | $497,432,808 | $533,333,270 |
Issued During Year | 101,540,000 | 79,559,719 | 75,798,807 |
Principal Payments to Securities Holders | 67,955,491 | 43,659,257 | 45,465,537 |
Securities Outstanding, end of year | 497,432,808 | 533,333,270 | 563,666,540 |
The Multiclass Program began in 1995. Estimated program activity, which involves a Ginnie Mae-guarantee on the Multiclass securities that are backed by already Ginnie Mae-guaranteed securities, is shown in the following table:
Actual
1996
|
Estimate
1997
|
Estimate
1998
|
|
---|---|---|---|
(Dollars
in Thousands)
|
|||
Securities Outstanding, beginning of year | $23,474,325 | $36,007,029 | $53,407,029 |
Issued During Year | 19,750,000 | 17,400,000 | 17,400,000 |
Principal Payments to Security Holders | 7,217,296 | ... | ... |
Securities Outstanding, end of year | 36,007,029 | 53,407,029 | 70,807,029 |
Financing
Application and guarantee fees and other charges are paid by issuers of guaranteed securities to cover Ginnie Mae's issuing and claims costs under the guarantees and to provide additional amounts to reduce the deficit. The Association may borrow from the Treasury in order to meet obligations. However, it has not had to use that authority.
Expenses reflect cost of operations including a write-down of assets held in inventory (real estate-owned properties, manufactured housing units, mortgages, and claims receivable) to the lower of cost or market value. During fiscal year 1996, $407 thousand was written-down.
The following table reflects the composition of program net income:
Actual 1996 | Estimate 1997 | Estimate 1998 | |
---|---|---|---|
(Dollars in Thousands) | |||
Revenue: | |||
|
$263,723 | $260,503 | $293,994 |
|
7,612 | 2,039 | 2,066 |
|
305,249 | 311,471 | 314,423 |
|
10,756 | 22,152 | 22,152 |
|
36,046 | 36,205 | 36,668 |
|
16,068 | 15,935 | 15,776 |
|
35 | 35 | 34 |
|
... | 7,879 | 7,801 |
|
639,489 | 656,219 | 692,914 |
|
-14,608 | ... | ... |
|
624,881 | 656,219 | 692,914 |
Expenses: | |||
|
|||
|
9,101 | 9,383 | 9,383 |
| 27,131 | 33,597 | 33,558 |
|
8,305 | 9,040 | 8,581 |
|
8,554 | 10,042 | 9,536 |
|
4,149 | 1,600 | 1,500 |
|
57,240 | 63,662 | 62,558 |
|
|||
|
407 | ... | ... |
|
57,647 | ... | ... |
|
+52,009 | ... | ... |
|
109,656 | 63,662 | 62,558 |
|
515,225 | 592,557 | 630,356 |
Sale of Servicing Rights
Sales proceeds of servicing rights in fiscal year 1996 was $3.9 million for single family, $3.7 million for multifamily, and $357 thousand for Manufactured housing programs. At the time of sale, a 10 percent down payment is made and the balance is paid based on the settlement date of the contract. In fiscal year 1996, no revenue was realized over expenses. Sale of servicing rights in fiscal years 1997 and 1998 is estimated to be $7.9 million and $7.8 million, respectively.
Fiscal Year 1998 Performance Indicators
Ginnie Mae expects to achieve the following objectives in 1998:
Indicator: Maintain and/or increase liquidity of funds available for FHA- and VA-backed mortgages, thereby lowering mortgage rates for home buyers using Federal credit.Benchmark: Maintain or increase percentage of FHA, VAand rural Housing Service securitization; introduce newproducts and/or innovations, implement efficiencies that result in cost savings.
Indicator: Maintain 95 percent rate of securitizing FHA and VA single-family mortgages securitized annually.
Indicator: Increase and maintain percentage of multifamily mortgages by 10 percent from fiscal year 1997 to fiscal year 1998. Ginnie Mae currently guarantees securities for about 40 percent of FHA's annual multifamily business.
Indicator: Increase revenue from multiclass security credit enhancement.
Benchmark: Increase throughput to the multiclass security program by 10 percent.
Indicator: Increase by 10 percent the number of lenders in underserved communities by conducting training seminars for potential new users, etc.
Indicator: Maintain adequate reserve fund based on estimates derived from Ginnie Mae's Policy and Financial Analysis Model.
Federal credit reform
The
Omnibus Budget Reconciliation Act (OBRA--P.L. 101-508) required
Federal credit programs to implement credit reform beginning in
fiscal year 1992. This year's Budget presentation for Ginnie Mae
has been structured with four accounts to comply with the requirements
of OBRA. In fiscal year 1998, the Financing Account will outlay
$9.4 million from its net receipts to a Receipt Account from which
$9.4 million will be appropriated for administrative expenses
into the Program Account and the Financing Account will outlay
$72 million from its net receipts to the Reserve Receipt Account.
The Financing Account is treated as a Non-Budgetary Account. Budget
authority and outlay data, for each of the new accounts, is presented
in the following table.
Ginnie
Mae Mortgage-Backed Securities 1998 Credit Reform Presentation (Dollars in Thousands) |
|
---|---|
Budget Authority | |
|
|
Liquidating Account: |
|
|
$735,369 |
|
-735,369 |
|
... |
|
|
|
|
|
9,383 |
|
... |
|
9,383 |
|
|
|
|
|
9,383 |
|
|
|
|
|
101,571 |
|
-101,571 |
|
... |
Outlays: | |
|
|
|
|
|
173,339 |
|
-735,369 |
|
-562,030 |
|
|
|
9,383 |
|
|
|
|
|
|
|
9,383 |
|
72,000 |
|
|
|
|
|
101,571 |
|
-101,571 |
|
... |