The Government Guaranty & Ginnie Mae Ted Tozer Housing Renaissance August 3, 2013

Value of the Government Guaranty on MBS Essential to preserving an affordable & widely available 30 year fixed-rate mortgage Makes mortgages eligible for the To-Be-Announced (TBA) market TBA market exclusively made up of government-guaranteed MBS (Ginnie Mae, Fannie Mae & Freddie Mac) TBA market enables borrowers to lock-in an interest rate prior to loan closing Assures investors they will get paid regardless of loan or issuer/servicer performance, effectively homogenizing MBS pools Homogenization enables investment in enormous blocks of mortgages $280.4 billion in daily TBA MBS trading in 2012 Attracts capital from throughout the world to invest in U.S. mortgages Makes investment in U.S. mortgages exceptionally safe & provides liquidity to them Note, mortgage payment is already insured by the Government through FHA, VA, USDA Although mortgage is insured, claim payment from insurer to Issuer/Servicer can take months, eg, long foreclosure process, & MBS investors expect payment on a monthly basis MBS guaranty ensures against catastrophic risk that Issuer/Servicer cannot make payment to MBS Investor due to, eg, Issuer/Servicer running out of cash Since MBS is very safe, many investors want to invest in it & many investors do invest in it Since there are a lot of buyers & sellers of MBS, it makes it very easy to sell your MBS for the price you would expect -> liquidity Another example of an exceptionally liquid investment is US Treasuries

Government Exposure to Mortgages U.S. Government has had a significant role in the mortgage market going back at least 30 years

Ginnie Mae Share of Agency Purchase Volume Agency: Ginnie Mae, Fannie Mae & Freddie Mac

Government is in the Fourth Loss Position Relative Loss Position First Dollar Loss Last Dollar Loss LOSSES Homeowner Equity Credit Enhancer Corporate Resources of Issuer/ Servicer Government Guarantor $

Ginnie Mae Transformation Initiative Securitization Platform Modernization Important contribution to MISMO initiative of industry standardization of loan data element definitions Loan-level data disclosure made available 8/2/2013 Enhanced expertise in counterparty risk management Modernization & possible consolidation of GN I & GN II programs