Government National Mortgage Association has rolled out a Stripped Mortgage-Backed Securities Program (SMBS Program). This stripped product results from the creation of interest- and principal-only carve-outs through a Grantor trust structure, rather than the typical REMIC platform. The trust is said to provide more liquidity to the strips that are created (see ASR, 4/19). Freddie Mac and Fannie Mae also have a similar program.

In a release, Ginnie said that it has structured the SMBS Program to "accommodate suggestions received during the last several months from various industry participants." The firm added that the rationale for the establishment of this program was to better the market execution for Ginnie mortgage-backeds and Ginnie Multiclass Securities programs by providing Ginnie issuers more flexibility and by offering new products to investors in the sector.

Ginnie is supposedly issuing the first trust off GNMA II 5.5s for July settlement. The issuance is roughly $2.2 billion. A rotation of broker/dealers will serve as the sponsors. Each one is given up to 30 days and expectations are for a deal per period.

"This should lend further support for GNMA par and discounts," said JPMorgan Securities in a report released last Wednesday. "The GNMA II 5.5 roll appears surprisingly weak, given the potential for the strip deal." Analysts said that the best GNMA roll appears to be for GNMA 1 5s. They expect the roll to firm into a 48-hour day. In general, the success of the GNMA Strip program should serve as a boon for GNMA discount and par coupons, said JPMorgan. Researchers said last Wednesday that GNS is currently trading at 3/32s premium with demand seeming quite strong.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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