The Department of Housing and Urban Development is proposing a change in Ginnie Mae's mission to allow the company to securitize conventional A-paper loans.
Under the proposal, Ginnie Mae would purchase loans not currently purchased by Fannie Mae and Freddie Mac, which are those with a loan-to-value ratio higher than 80%. Because of the high LTV, these mortgages require private mortgage insurance (PMI).
Ginnie Mae hopes that by focusing on these loans, it could help "increase liquidity to moderate and lower-income, underserved and minority borrowers who have less ability to make substantial down payments," a program description stated.
By securitizing PMI mortgages, Ginnie Mae would be expanding its mission, in which the federal government currently allows it only to securitize FHA, VA and FHS-insured loans. "Securitizing PMI loans provides Ginnie Mae the opportunity to further its mission of expanding homeownership and provide additional capital to the housing market," the report stated.
An average of $48 billion in PMI mortgages during the years of 1994 and 1998 were unsecuritized, and Fannie Mae and Freddie Mac had only securitized 54% and 71% of the PMI loans. Ginnie Mae wants to address the issue of many of these loans remaining in issuers' portfolios, and said there is a benefit to these issuers, because it would lower their production costs. "Lower production costs could help issuers better manage their profit margin and make capital available for other uses."
The proposal is part of HUD's fiscal 2001 budget request, which includes another proposal for Ginnie Mae to be allowed purchase its own mortgage-backed securities to support the pricing of its product.