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HUD Archives: News Releases


HUD No. 02-137
(202) 708-0685

For Release
Tuesday
November 5, 2002

CHANGES TO GINNIE MAE MBS PROGRAM EXPECTED TO LOWER COSTS OF MORTGAGES, INCREASE HOMEOWNERSHIP
Proposal Will Reduce Lenders' Servicing Requirements, Attract More Investors

WASHINGTON - Ginnie Mae today proposed to reduce to 19 from 44 the minimum number of basis points that issuers of federally guaranteed mortgages must set-aside for servicing, a move that housing officials say will cut the cost of federally insured mortgages and increase homeownership rates. Ginnie Mae-issued securities, backed by mortgages from the Federal Housing Administration, Veterans Administration and Rural Housing Service, are guaranteed by the full faith and credit of the U.S. Government.

According to Ginnie Mae President Ronald Rosenfeld, the proposed changes stem from President Bush's June 2002 call to add 5.5 million minority families to the roles of homeowners by the end of the decade.

Rosenfeld said these proposed changes will help meet the President's goal by streamlining processes and making the securities more attractive to investors.

"As President Bush has said, every American deserves the opportunity to own a home," Rosenfeld said. "By working hand-in-hand with our business partners, we will make Ginnie Mae more efficient and in the process, help millions of Americans realize the dream of homeownership."

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 30-year old rationale for the 44 basis point reserve was to protect Ginnie Mae in the event of a default by issuers, which would put the task of servicing on Ginnie Mae or its designee. Under the terms of the proposal, issuers will have the option of passing along this savings, which reduces the cost of servicing, to homeowners. Servicing refers to 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.

Currently, the GNMA II program features securities backed by mortgage rates substantially higher than the security rate, with issuers receiving a variable servicing fee and investors paid on the 20th of the month.

The proposed changes will enable the new GNMA II program to narrow the gap between security and mortgage rates, allowing issuers to determine their servicing fee and moving the security payment date to the 15th of the month.

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. 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 to MBS_Program_Changes@hud.gov, or by letter at: HUD, 451 Seventh Street, SW, Room 6214, Washington, DC 20410, ATTN: MBS II Program Changes.

Chartered by Congress in 1968 as a government corporation, Ginnie Mae has guaranteed more than $2 trillion in residential mortgages - $175 billion in FY 2002 - providing homeownership opportunities for over 27 million households. Ginnie Mae securities are backed by the full faith and credit of the U.S., and thus have the same credit risk as U.S. Treasury securities.

HUD is the nation's housing agency committed to increasing homeownership, particularly among minorities, creating affordable housing opportunities for low-income Americans, supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development as well as enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet.

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