Ginnie Mae's market share for MBS issuance is on a rapid decline and Fannie Mae and Freddie Mac have a lot to do with it, sources said.
According to a recent Lehman Brothers report, year-to-date 30-year GN issuance is only 21% of the 30-year MBS issuance figures. It is, said the report, at an all-time low.
Further, the May 2001 results showed that Ginnie's issuance share slid to 18%, which is significantly less than the 22% seen in the 1999 refi wave and Ginnie's 25% share in the 1996 refi wave.
Lehman attributes the huge decline partly to the refi boom. Typically, during a refi wave, Ginnie issuance falls because of "the refinancing activity of Ginnies into coventionals," said the report. On the other hand, Ginnie issuance thrives in a discount market because of the larger percentage of purchase buyers. However, this does not discount the fact that the Mortgage Partnership Finance program greatly threatened GNMA's origination share in the first part of 2000.
Experts say, however, that aside from these factors, Fannie and Freddie are also eating away GNMA market share. Since Fannie and Freddie have high-LTV programs and have relaxed some of their guidelines in terms of documentation and credit requirements, they have eaten away at Ginnie's base clientele. Added to this is the fact that it is cheaper and faster to get a conforming loan compared to a government loan.
"I think Ginnie is losing a lot of borrowers both in terms of purchase and refi into the programs of the GSEs," said a mortgage researcher. "It is clear that when people are refinancing out of Ginnie Maes, it does not appear that they are refinancing back into Ginnie Maes."
Another possibility that plays into Ginnie's downward figures is the fact that a lot of the issuance is due to cash-out activity. Given this, experts say you could argue that home appreciation has been seen less in the geographic activity where Ginnie is strongest. While Fannie and Freddie are strong in the mid-market sectors, Ginnie is a player into the lower end of the market, which has seen less housing appreciation.
GNMA Is vs. GNMA IIs
This downward trend is especially affecting GNMA I market share.
According to the Lehman report, even though GNMA I issuance averaged 83% of the total 30-year Ginnie issuance volume in 1995 & 1996, the current year-to-date figures show that GN1 only comprises 56%.
Though GNMA I figures have been staging a comeback in the last few months, Lehman believes that GNMA IIs will "play a much bigger role going forward."
Art Frank, director of fixed income research at Nomura Securities, said that GNMA II gross issuance dropped 21.7% in May, down to $4.82 billion from $6.15 billion in April.
"I believe that the May decline in GNMA II issuance is due to the fact that Federal Home Loan Banks (FHLB) are buying more Federal Housing Administration (FHA) mortgages," said Frank.