Housing officials say that changes proposed by the Government National Mortgage Association (Ginnie Mae) to reduce the minimum number of basis points that issuers of federally guaranteed mortgages must set-aside for servicing will cut the cost of federally-insured mortgages and increase homeownership rates.

The proposed changes will provide lenders with more flexibility in pricing their mortgage products to homebuyers. Better pricing ultimately translates to reduced interest rates to borrowers and increased homeowners opportunities.

The changes would cut by more than half the basis point reserve Ginnie Mae has required in the event of a default by issuers. In that event, the task of servicing would fall to Ginnie Mae or its designee (servicing is the process of collecting monthly payments and making required disbursements for taxes, insurance, etc.). A basis point is the smallest measure used for quoting interest rates. For example, an interest rate of 5 percent is 50 basis points higher than an interest rate of 4.5 percent.

Other proposed changes to the program are more technical, and when implemented should improve investor interest in the security.

When the changes are implemented, the GNMA II security will more closely resemble the agency's GNMA I security, which has been a flagship of the mortgage finance market for more than 30 years. The GNMA I program features securities backed by mortgages at one rate, with both the issuers receiving a fixed servicing fee and investors receiving their return on the 15th of each month.

Ginnie Mae notified program participants of the proposed changes on November 1 by letter, and has posted the changes on its web site (www.ginniemae.gov). In addition, senior staff will meet with members of lending institutions in Los Angeles, Dallas, Atlanta, Detroit and New York City to discuss the changes.

Ginnie Mae will accept comments on the proposal through December. Comments can be submitted by email: MBS_Program_Changes@hud.gov, or by letter: HUD, 451 Seventh Street, SW, Room 6214, Washington, DC 20410, ATTN: MBS II Program Changes.