Recently, the Federal Housing Authority (FHA) announced the elimination of upfront refunds of mortgage insurance premiums for borrowers refinancing out of FHA loans. This is expected to lower Ginnie Mae MBS volumes and noticeably affect the prepayment behavior of its securities.

Noting that FHA loans make up 69.1% of Ginnie Mae outstandings, UBS said that these modifications on FHA refinancing incentives and flexibility "directly impact the prepayment and issuance behavior of GNMAs."

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