Improving Liquidity for Ginnie Mae Servicing Assets

Abstract

Abstract: This paper asks two basic questions: 1) Why do Government National Mortgage Association (GNMA) servicing assets trade at a discount to conventional and even private label mortgage servicing rights (MSRs), and 2) Why do lenders offer inferior terms when providing secured financing of GNMA MSRs? To answer these questions, we examine the evolution of GNMA as part of the U.S Department of Housing and Urban Development (HUD). Particular emphasis is placed on the relationship between GNMA and private market participants in providing insured credit to support affordable home ownership. This paper traces the development of GNMA as a participant in the market for government insured MBS and related mortgage servicing assets, and examines how GNMA compares with government sponsored entities such as Fannie Mae (FNMA) and Freddie Mac (FHLMC). Finally, we make recommendations as to how GNMA can update its operating rules and practices in the secondary market for government loans, and better align with current commercial practices of the GSEs, so as to increase liquidity for private market participants that issue and service GNMA MBS, and related MSRs. This paper concludes that the difficulty financing the GNMA MSR, the relatively higher cost of servicing GNMA MBS and the relatively high rates of loan prepayments, all contribute to inferior prices for GNMA servicing assets compared with conventional and private MSRs.

Keywords: Mortgage, Mortgage Servicing Rights, MSR, Federal Housing Administration, Ginnie Mae, HUD, Non-Banks, Lending, Servicing, Funding, Brandeis, True Sale

JEL Classification: G00, G20, G23, G32, G33, G38, K2, K23, M2, M48, N2