Ginnie Mae announced last Friday that during a quality control review, it identified about 2,360 mortgages backing 1,693 of its RMBS that may be buydown mortgages --- loans with funds contributed from third parties to reduce monthly payments in the early part of the mortgage --- and thus ineligible for those securities. Ginnie's program requirements prohibit the inclusion of buydown loans in certain securities. In the next phase of the review, Ginnie Mae will work with its issuers to see whether these loans are in fact buydowns or have been misreported by issuers. If the loans turn out to be buydowns, Ginnie Mae will require issuers to substitute eligible mortgages or buy them out of the pools. The loan review has led Ginnie to expand its quality control efforts by establishing a formal quality control function in the Office of Program Operations. Among other things, the expanded quality control procedures include a periodic post-issuance review of outstanding Ginnie Mae securities. Ginnie Mae already performs pre-issuance quality control reviews. The post-issuance review provides additional assurance that outstanding securities comply with Ginnie Mae program requirements. A list of the specific securities and the number and unpaid principal balance of the possible buydown loans can be found on Ginnie Mae's website at www.ginniemae.gov.

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