Research Identifies Government Mortgage Program Benefits

While there has been a massive amount of conversation about the future role of Fannie Mae and Freddie Mac, the conversation often fails to address what these GSEs' government mortgage programs do for the mortgage market. Urban Institute recently released a report, identifying how programs like the Federal Housing Administration (FHA), the Department of Veteran’s Affairs (VA), and the Government National Mortgage Association (Ginnie Mae) impact the mortgage market.

According to the institute, there has been plenty of talk lately about the future role of the GSEs, given the upcoming seventh anniversary of their takeover by the government.

At a recent seminar co-hosted by the Urban Institute and CoreLogic, panelists from these three government agencies and Housing Finance Policy Center director Laurie Goodman clarified these agencies’ critical, if often overlooked, role in keeping the nation’s mortgage market healthy.

Karan Kaul, research associate at the Institute and Sheryl Pardo, associate director of communications at the institute focused on five points made by Stuart Quinn of CoreLogic at the seminar.

Five key program benefits:

• FHA helps stabilize the mortgage market. The FHA’s mission is twofold, according to Ed Golding, FHA’s principal deputy assistant secretary: to play a counter-cyclical role in the mortgage market and to ensure access to credit for underserved borrowers.

• FHA ensures broad access to mortgage credit. By insuring mortgages with down payments as low as 3.5 percent for borrowers with lower credit scores, the FHA enables more borrowers to become homeowners. FHA is clearly succeeding in this mission to serve low- and moderate-income households and first-time homebuyers, who often find it difficult to obtain financing from private sources.

• FHA is balancing its mission with risk and profitability. Although FHA’s Mortgage Mutual Insurance (MMI) fund is currently below its congressionally mandated level, Goodman pointed out that the “[the] fund is a poor indicator of FHA’s profitability. The presence of reverse mortgages, which are highly sensitive to interest rates, distorts the MMI fund valuation, as do the loans from the pre-2008 period when FHA’s insurance premiums were quite low.”

• The VA offers veterans a substantial reward for their service to our country. The VA program has a very different mission than FHA’s: to help veterans buy and own homes in recognition of their service to the nation. It is not focused on first-time homebuyers. There are other differences as well, emphasized Mike Frueh, director of the VA Home Loan Program: the VA program is not a low-down payment program—it’s a no-down payment program, no mortgage insurance is required, and lenders retain a portion of the credit risk for VA loans.

• Ginnie Mae has helped bring private capital back to the mortgage market. John Getchis, senior vice president of Ginnie Mae, told the audience that private capital is coming back through Ginnie Mae in the form of smaller non-depository issuers, which have grown consistently in recent years, picking up the slack as many of the traditional depository institutions have scaled back their commitment to mortgage lending. Ginnie’s top five issuers now comprise only 39 percent of the total 2015 year-to-date issuance compared to 76 percent in 2011.