The agency’s revenues exceed its expenses, which reduces the  federal budget deficit. Ginnie Mae Securities Finance Most Government-Backed Housing Loans, but Represent a Declining Share of the Total MBS Market

Ginnie Mae securities finance the great majority of FHA and VA loans,  suggesting that the agency is fulfilling its basic mission, and faces relatively  little competition in the market for government-backed mortgage loans. As shown in figure 4, Ginnie Mae securities represented  42 percent of all new MBS issued in 1985, but only 7 percent in 2004. Changes in Ginnie Mae’s Share and Volume Could Have Implications for Borrowers, the Liquidity of Its Securities, and Federal Revenue

Ginnie Mae’s share of the government-backed mortgage market has been  fairly constant. The officials said that if volume continued to  decline, liquidity could become a significant concern in the future, although  it is unknown at what levels of volume this would occur. In fiscal year 2004, this amount  was $295 million. First, it must respond to  changes in the marketplace and meet the needs of its stakeholders. To meet  this challenge, the agency has expanded its product offerings and taken  other initiatives to maintain its viability. Ginnie Mae Is in the Process of Expanding Disclosure on Loan Information to Help Investors Better Predict Prepayment

Investors in Ginnie Mae securities do not face credit risk, since the  mortgages underlying these securities are federally insured or guaranteed  and because Ginnie Mae guarantees timely payment of principal and  interest. Further, 99 percent of Ginnie  Mae’s portfolio is made up of loans backed by FHA and VA, and the agency  now matches the loans in its data systems against those in FHA’s and VA’s  databases. Observations

Despite its declining share of the overall MBS market, Ginnie Mae  continues to serve its key public policy goal of providing a strong  secondary market outlet for federally insured and guaranteed housing  programs, helping to improve their access and affordability for low- to  moderate-income borrowers. This may be especially  challenging for Ginnie Mae because it operates with a small staff of about  66 and contracts out most of its operations. Objectives, Scope and Methodology

Our report objectives were to evaluate (1) the state of Ginnie Mae’s market  share and guarantee volume, (2) the potential implications of changes in  Ginnie Mae’s market share and guarantee volume, and (3) challenges  Ginnie Mae faces in fulfilling its mission and the steps that have been or  could be taken to address these challenges. We also compared loan data provided by Ginnie Mae with  data maintained by the Department of Veterans Affairs (VA), Rural Housing  Service (RHS), and the Office of Public and Indian Housing (PIH) within  the Department of Housing and Urban Development (HUD).
Why GAO Did This Study

The Government National Mortgage Association, commonly known as Ginnie Mae, is a wholly owned government corporation that guarantees mortgage-backed securities (MBS) backed by pools of federally insured or guaranteed mortgage loans. The agency supports federal housing programs by facilitating the securitization of loans backed by the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), Rural Housing Service, and the Office of Public and Indian Housing within the Department of Housing and Urban Development (HUD). Concerned that Ginnie Mae's share of the overall MBS market has declined significantly, Congress asked us to address (1) the state of Ginnie Mae's market share and guarantee volume, (2) the potential implications of changes in its share and volume, and (3) the challenges Ginnie Mae faces and steps it is taking and could take to address these challenges.

What GAO Found

Despite its declining share of the overall MBS market, Ginnie Mae continues to serve its key public policy goal of providing a strong secondary market outlet for federally insured and guaranteed housing loans. Ginnie Mae MBS financed more than 90 percent of new FHA-insured and VA-guaranteed loans in fiscal year 2004, and the agency appears to face relatively little competition in this market. Ginnie Mae's total volume has declined in recent years, however, and its share of the overall MBS market has fallen from 42 percent of new securities in 1985 to 7 percent in 2004. This drop is largely the result of the decline in the market share of the FHA and VA loan programs and the concurrent rise in the securitization of non-government-backed mortgages. Further declines in Ginnie Mae's volume could potentially have implications for borrowers, the liquidity of its securities, and federal revenues. For example, Ginnie Mae's securities could become less liquid, although it is unclear at what levels of volume this would occur. In addition, Ginnie Mae's program revenues could decline if its volume decreased. In fiscal year 2004, program revenues exceeded expenses by $295 million, which helped reduce the federal budget deficit. Ginnie Mae faces a number of challenges in responding to changes in the marketplace, meeting stakeholders' needs, and managing its operations, and the agency has been taking steps to address these challenges. For example, it has expanded its product mix to reach more borrowers and has begun disclosing more information on loans underlying its securities to help investors better predict risk. GAO and others have identified opportunities for improvement in Ginnie Mae's data integrity and internal controls. The agency has begun addressing these issues, but it contracts out most of its operations, so ensuring that it has sufficient staff capabilities to plan, monitor, and manage its contracts is essential.