WASHINGTON — Last month, nonbank lenders were outraged over a Ginnie Mae plan to impose capital requirements. Industry observers say such a consequential policy underscored a long-held concern about the often-overlooked agency: It has lacked a permanent leader for more than four years.
The leadership void — outlasting the previous administration entirely — is inconsistent with the agency's role in facilitating affordable housing and the market for mortgage-backed securities, experts say. Now run by career staff, Ginnie had a record amount of outstanding obligations last year, exceeding $2 trillion.
Its last permanent president was Ted Tozer, who departed in 2017 just before former President Donald Trump took office. Between then and October 2019, the agency — housed inside the Department of Housing and Urban Development — was led by politically appointed acting presidents. But since, it has been run by slightly less senior executives.
“I sure wish they would get a president and really try to get back to the understanding that Ginnie Mae is a critical piece of the housing finance system,” said Tozer, who is now a senior fellow at the Milken Institute. “You just can't afford to leave it without any kind of leadership.”
The agency’s backing provides a quasi-insurance policy to investors in mortgage-backed securities, ensuring that borrowers in government-backed programs are able to capture lower interest rates on home loans, in turn making many mortgages more affordable.
The current de facto leader is Michael Drayne, who has been serving as Ginnie Mae’s acting executive vice president since the beginning of this year. Seth Appleton — who was the principal executive vice president of the agency and a political appointee — stepped down at the end of 2020. The agency has not had an acting president since Maren Kasper left two years ago; she had headed the agency in a temporary capacity for less than a year.
“It's this job that is inside of HUD … that isn't seen as prestigious, but if you make a mistake, it could tank the U.S. credit rating,” said Michael Bright, president and CEO of the Structured Finance Association, who served as acting Ginnie Mae president from 2017 to 2019.
Bright was also Trump’s nominee to be the permanent head of the agency. But despite having testified at a nomination hearing and being approved by the Senate Banking Committee, the full Senate never voted on his nomination.
David Stevens, former commissioner of the Federal Housing Administration and CEO of Mountain Lake Consulting, believes there have been consequences resulting from the vacancy in the first few months of the Biden administration.
“I just truly believe that it's now a completely career staff-run institution that seems to be behaving more and more, as each month goes on, as though it has no responsibilities to be in sync with the administration's housing objectives, and that's why you need to have a Senate-confirmed Ginnie Mae president,” he said.
In particular, Stevens pointed to a proposal Ginnie Mae put forward last month to introduce a risk-based capital requirement for nonbanks that incited massive backlash from the mortgage industry. Some suggested that the changes would cause some lenders to stop originating loans that are guaranteed by the FHA and other government agencies, including the Department of Veterans Affairs.
“The requests for information they put out on capital for nonbanks frankly reflects a lack of leadership in the building,” said Stevens. “Normally, if there had been a president of Ginnie Mae who worked with the [HUD] secretary's office, that would have gone through some filters before it just got put out there.”
It is unclear if HUD Secretary Marcia Fudge was aware of the proposal before it was released, but many have argued that the proposed requirements could undercut Fudge’s stated goals of keeping access to credit open for first-time and minority homebuyers.
“This RFI that Ginnie Mae came out with on capital and liquidity possibly could have been handled a bit better,” said Tozer. “Not having a president confirmed, I just don't know if the career staff has access to that kind of give-and-take with the political staff at HUD.”
A Ginnie Mae spokesman emphasized that the agency has had political appointee leadership up until start of the Biden administration and that its business volume has been “record breaking” the past several years under acting officials.
“Ginnie Mae has introduced policy changes to strengthen the market for mortgage-backed securities, strengthen the safety and soundness of our issuers and improve technology investments, including recent developments in digital collateral, just to mention one tech evolution,” the spokesman said.
In 2020, Ginnie announced it would allow “digital collateral” or electronic promissory notes as collateral in its securities, which HUD said at the time would increase efficiency for issuers.
Still, Stevens said a Senate-confirmed president could bring a sense of accountability to the agency that has been missing as of late.
“To allow [Ginnie Mae] to arbitrarily throw darts against the dartboard to see if it holds on its own in isolation without dialogue and conversation with the other agencies that are affected by it, I think is really risky,” he said.
Bright attributed the vacancy atop Ginnie Mae in part to recruiting challenges. The job requires both extensive capital markets knowledge and political know-how, and at the same time doesn’t have the privileges of being at an independent agency.
“You've got this enormous, massively complex bond administration and sales program shoved inside of HUD,” he said. “Even if you did get someone who was really smart, when they find out they have to report to the HUD [deputy secretary] who typically doesn’t have a deep understanding of MBS mechanics, I think that probably diminishes any enthusiasm.”
At one time not that long ago, some policymakers and stakeholders proposed spinning Ginnie off from HUD, making it an independent agency as part of proposals to reform the housing finance system.
Most recently, in 2018, a proposal spearheaded by then-House Financial Services Chairman Jeb Hensarling suggested using Ginnie Mae as an alternative to Fannie Mae and Freddie Mac in providing support for mortgage-related assets. A 2016 Milken Institute paper, co-authored by Bright, similarly proposed establishing Ginnie as a backstop. However, such proposals have gained little traction in the current Congress.
HUD itself has been plagued with staffing challenges, predating even the most recent administrations. An inspector general report from 2018 found that “constant turnover and extended vacancies in many of HUD’s most important political and career executive positions … have led to poor management decisions and questionable execution of internal business functions.”
Many also feel that the position atop Ginnie is still empty largely because there is a lack of understanding as to the agency's function in the mortgage market.
“To me, I think the reason why the position is not filled is because of the fact that they don't really appreciate, I think, to a large degree, what Ginnie Mae does,” said Tozer.
Bright agreed, adding that many people don’t understand the technical nature of the job.
“I think that there is a gulf in people's understanding of the importance of the role and the actual importance of the role,” he said.
Meanwhile, the agency’s record-breaking volume over the last few years has allowed it to fly under the radar in both the Trump and Biden administrations, putting the Ginnie Mae appointment low on the priority list of appointments.
“Ginnie's success, it almost hurts it, to some degree, because it's so successful, that people just don't think twice about it,” said Tozer. “It's really a testament to the career people, but it's also not fair to them to not have a confirmed president.”
