With the structural changes that took place in the Ginnie Mae sector since 1990, these securities have started to look more and more like subprime MBS from a credit and prepayment perspective, said analysts. GNMAs have also become a good alternative for investors looking for call protection as defaults have made them less prepayment- sensitive.

In a recent report, Bear Stearns examined discount GNMA prepays both on an absolute basis and versus their conventional counterparts since 1989, looking at the four periods with the highest interest rates, stable prepays and the largest number of discount MBS. Results show an ongoing trend of faster GNMA discount prepays across all vintages since 1990.

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