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» VISIT US ONLINE @ DSNEWS.COM 75 that Ginnie Mae is becoming a regulator? Not necessarily. Instead, we are like the Federal Deposit Insurance Corporation (FDIC), where we set the standards our issuers must follow in order to have their MBS guaranteed. STRENGTHENING STANDARDS Ginnie Mae is looking more closely at our issuers than ever before. We've identified a "high risk" issuer group to more closely monitor net worth and liquidity requirements, as well as operational risks. However, these steps are not sufficient to deal with risks posed by the changing landscape described here. Our openness to supporting the transformation to working with more non-bank servicers does not imply that we are overlooking the greater risks presented by this trend. Because non-banks are not subject to the same level of regulatory scrutiny as depository institutions, we must substantially change our risk management practices by continuously working to upgrade our ability to the performance of our issuers. Perhaps our biggest challenge in this new environment, however, is market liquidity, which in this sense has two primary meanings: (1) ere is adequate supply of funding for mortgage lending, and the sources of funding are accessible at the point of need; and (2) e issuer has the ability to meet its obligation to fund servicing advances to security holders if loans are in default. e increased focus on capital and liquidity standards led Ginnie Mae to release a September 2014 white paper, "An Era of Transformation," to outline the shift to non-depositories in the mortgage market and numerate the many ways Ginnie Mae is responding and adapting to the new realities. One of our first actions was to release new capital and liquidity standards in October for all issuers, including non-depositories. e Federal Housing Finance Agency (FHFA) followed suit and released for comment its standards in January. We also revised our Acknowledgement Agreement to provide for liquidity through establishment of mortgage servicing rights (MSRs) as collateral. Other recent and near-term strategies include: » e launch of the Issuer Operational Performance Profile (IOPP) tool, which will measure issuer performance against Ginnie Mae standards and the performance of peer issuers; » Development of eligibility requirements for Pools Issued for Immediate Transfer (PIIT); » Continued exploration of how advance financing can be provided for in the realm of government-insured loan servicing; » Development of the ability to support loan- level servicing, so that Ginnie Mae issuers are no longer constrained by the need to service or transfer an entire pool; and » Attention to the development of MSRs as an alternative assets class, divorced from servicing operations, and consideration of program modifications to support this effort. e goal of these actions is to ensure that Ginnie Mae issuers will be successful in our program, thus ensuring our success in administering and protecting the government guaranty. e most serious threat to our guaranty would be a series of issuer failures that could create doubt about the long-term political support for the program. While FHFA's recent proposal to tighten eligibility standards for GSE seller/services has garnered industry attention, it is important to understand that Ginnie Mae has been and continues to be the active industry leader in this policy arena. In fact, Ginnie Mae has been significantly raising program requirements for several years, with the overall goal of mitigating risk for the American taxpayer, who ultimately supports Ginnie Mae's guaranty. Ginnie Mae's narrow function of administering a government guaranty has the advantage of making it possible to very clearly describe the most essential role of our issuers: ey must report accurate and timely data about securitized pools and manage pass-through funds on behalf of security holders. THE FUTURE IS NOW Ginnie Mae's challenge is to perform a delicate balancing act in an increasingly complex environment. It has to adapt to changing circumstances while preserving the integrity and strength of our MBS program and ensuring that credit to buy homes is available to those who qualify. As a guarantor only, our compact size and limited scope of operation lead us toward a notably market-focused and private sector- oriented approach. In this balancing act, our overarching goal is to protect and preserve the utility, relevance and remarkably successful track record of the Ginnie Mae MBS program. We recognize that the market is changing, and adapting to these changes will keep the Ginnie Mae program vibrant and strong. We also know that another adverse effect of the withdrawal of depositories is the tightening of credit, leading Ginnie Mae to broaden access to our program through non-traditional structures, such as our partnership with the Federal Home Loan Bank of Chicago that will permit member banks to participate in our program without the need to separately and individually obtain Ginnie Mae approval. is partnership will open our program to smaller community banks and lenders, many of which are focused primarily on customers and long- term investment in their communities. We anticipate that the first pool in this new program will be issued in the spring. However, Ginnie Mae's growth has not come without new demands. If Ginnie Mae cannot increase our staff to sufficiently and adequately monitor issuers once they are in the program, we may be forced to limit the type of entities allowed to issue Ginnie Mae-guaranteed MBS, thus limiting access to credit for millions of borrowers. We are committed to making our program as open as possible to facilitate equal access to credit and provide a level playing field along with a single security and platform model that has proven to work. e agency played a pioneering role in the creation of a securities market for mortgage loans, has the ability in the ensuing period to refine the MBS program to maintain its relevance, and, especially, has maintained an unblemished record of profitable operation through nearly five decades of market change and disruption. All of this is testament to the power of a well-conceived and executed government partnership with the private sector to support the healthy functioning of a critical and sizable private sector function. "Ginnie Mae is looking more closely at our issuers than ever before. We've identified a "high risk" issuer group to more closely monitor net worth and liquidity requirements, as well as operational risks." 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