MBA Government Housing and Loan Production Conference
Challenges and Opportunities at Ginnie Mae

Address by Michael J. Frenz
Washington, DC - June 12, 2008

Thank you, Steve, for that kind introduction, thank you to Jonathan Kempner and the MBA for inviting me to participate on this panel, and good morning, ladies and gentlemen.

The last time I addressed this conference, home prices were increasing at a double-digit pace, originations were booming and absolutely anyone could get a loan, regardless of credit, income or down payment. FHA and Ginnie Mae market share was below 5 percent of the overall market.

Times have really changed. Housing prices are falling in many areas in the United States for the first time since the Depression. Foreclosures are rising and originations are declining. I could go on and on, but we are all aware of the challenges this industry currently faces.

Since this time last year, there has been a significant resurgence in FHA insurance originations and a corresponding increase in Ginnie Mae security issuance activity. In May, Ginnie Mae nearly tripled its year-over-year issuance volume by guaranteeing $21.5 billion in securities compared to $7.7 billion last year. For all of fiscal year 2007, we issued a total of $85.1 billion in MBS. This year we have already issued $112 billion, expect to issue over $200 billion and may exceed the 2003 record volume of $216 billion. We're hearing from some lenders that FHA constitutes 35 percent of their production and it may go to 50 percent for others. Street researchers have said that our issuance could go to $40 billion a month.

This rapid growth has presented Ginnie Mae with a different set of business and risk management challenges than we have faced in the recent past. We are reviewing every aspect of our business to ensure that we effectively manage these large volume increases. Many of our issuers have experienced financial difficulties, so we have instituted some risk management reengineering to ensure that they can continue to do business with Ginnie Mae, without posing undue risk to us. This environment demands that we closely monitor risk.

We also are instituting stronger internal controls, better project management oversight, and better cost control. It's like in Remember the Titans, "We want to block better, we want to tackle better!"

We want to offer a better value proposition to investors with enhanced disclosures and to lenders with faster turnaround times and better client service.

We want to strengthen the Ginnie Mae brand and emphasize that we offer the only mortgage-backed securities with the full faith and credit guarantee of the U.S. government. This is especially meaningful for foreign investors, and we have recently seen a substantial increase in Ginnie Mae holdings among Asian investors.

We want to position ourselves to continue providing the liquidity the market looks to us for, and to do so for the long term. All of this is to allow us to better perform our mission of linking the nation's mortgage markets with global capital markets to promote affordable homeownership.

In closing, I'd like to highlight some other changes at Ginnie Mae: Ted Foster, a long-time Ginnie Mae veteran and former head of our Office of Mortgage-Backed Securities has left us for Wells Fargo in Minneapolis, where he will continue to promote government-backed loans and securities. Steve Ledbetter, our chief risk officer, will replace Ted on an acting basis. Before coming to Ginnie Mae, Steve worked for the FDIC, the Treasury Department and Freddie Mac, and brings a wealth of risk, mortgage and capital markets experience. He will, of course, be aided by Kathy Gibbons, our director of single-family MBS, whom most of you know from her great work at the MBA over the years.

Finally, we're not supposed to lobby, but Joseph Murin, the nominee for president of Ginnie Mae, has had his confirmation hearing and awaits confirmation by the Senate Committee on Banking, Housing and Urban Affairs and the full Senate. If you happen to see a senator either here or at home, tell him that Ginnie Mae could use his leadership, derived from years of experience in all facets of the mortgage business, to help Ginnie Mae face and triumph over the challenges we face in this new market environment. Thank you.