A good time for government lending.

Author:Schneider, Howard
Position:Broker Business

Only industry veterans can recall when Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans were primary products for most mortgage bankers. FHA granted 1.3 million endorsements in 1987, notes the Department of Housing and Urban Development (HUD). Despite an expansion of the overall home mortgage business over the next 20 years, FHA endorsements still fell by 56 percent during those two decades.

VA home loan guarantees dropped from 455,616 in 1987 to 133,237 in 2007, according to the Department of Veterans Affairs. However, private mortgage insurance certificates swelled almost fourfold over that period, adds the Mortgage Insurance Companies of America (MICA), Washington, D.C.

But that trend now is reversing. Current Ginnie Mae production doesn't suggest the industry is in a slump. Ginnie Mae issued $39 billion in securities during the first quarter of this year, with almost $15 billion coming out in March alone, the agency reports. FHA and VA loans made up most of those pools. By comparison, Ginnie had just $18.3 billion in volume over the first three months of 2007.

Growth at Ginnie has accelerated as the subprime business has deteriorated. "Ginnie Mae has seen a steady increase in our issuance since October of last year," says Theodore B. Foster, Ginnie Mae's senior vice president for mortgage backed securities (MBS).

In 2005, Ginnie Mae accounted for just 4 percent of total MBS issuance. However, today FHA and VA market share is jumping, Foster adds.

"Our issuers have indicated that as much as 30 [percent] or 40 percent of their business may be securitized through Ginnie Mae to issue between $175 [billion] and $200 billion in MBS in calendar-year 2008."

Rising delinquencies on both subprime and conventional loans are encouraging mortgage companies to move back into government-insured mortgages. Private-label securities, backed primarily by subprime loans, made up 57 percent of total MBS dollar volume just two years ago, reports Ginnie Mae. But private-label securitization has shrunk to just 7 percent of the MBS market since reaching that peak, according to Ginnie Mae.

Surging FHA loan production is stepping in to replace the battered subprime arena. Higher loan limits for FHA deals are adding to the attractiveness of that business. In March, FHA loan limits were increased temporarily to $729,750 in some areas of the country. Higher loan limits allow FHA mortgages to be originated in real estate markets that...

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