January 14, 2003
GINNIE MAE ANNOUNCES CHANGES TO MORTGAGE BACKED SECURITY PROGRAM
Consumers, Lenders and Investors All Expected to Benefit
WASHINGTON - Ginnie Mae said today it will 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 should benefit consumers by cutting the cost of such loans, thereby increasing homeownership rates.
The changes, effective July 1, apply only to the GNMA II Mortgage-Backed Securities program. By lowering the servicing fee minimum, issuers of GNMA II securities will have more flexibility in how they assemble mortgages into securities, according to Ginnie Mae President Ronald Rosenfeld.
"We have made the GNMA II program more effective for all types of lenders," Rosenfeld said. "Historically, the program has best served those lenders that prefer to generate their greatest revenue through mortgage servicing. Now, those lenders that prefer to generate their greatest revenue through the origination of Ginnie Mae securities will also benefit."
For example, a mortgage with an interest rate of 6.25 percent could be pooled into a 5.5 percent security by issuers that want to create a long-term cash flow with income from loan servicing. Alternatively, under the new program guidelines, another issuer could opt to pool the same loan into a 6 percent security and generate increased income at origination rather than through servicing.
The changes also make GNMA II securities more attractive to investors. By cutting in half the range of mortgages rates that can be pooled together, investors are more able to predict the performance of the securities.
When the changes are implemented, the GNMA II security will more closely resemble the agency's GNMA I security, the flagship of the mortgage finance market for more than 30 years. GNMA I securities are highly valued for their performance, which results from being guaranteed by the U.S. Government.
Ginnie Mae officials also believe that increased lender flexibility and a more appealing security should result in more capital being available for government-insured mortgages. "We have improved Ginnie Mae's ability to connect Wall Street with Main Street, and as a result, more Americans will become homeowners," Rosenfeld said.
Ginnie Mae notified program participants of the proposed changes on November 1 by letter, and posted the proposal on its web site, www.ginniemae.gov. Senior staff also met with members of lending institutions and other interested parties throughout December. The changes announced today reflect those comments.
Chartered by Congress in 1968 as a government corporation, Ginnie Mae has guaranteed more than $2 trillion in residential mortgages, providing homeownership opportunities for more than 27 million households.
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.