Ginnie Mae plans to introduce an excess servicing security this October, applying it only to excess servicing on GNMA II originated loans. This new program is meant to alleviate the seller's burden in retaining the servicing, as the asset has historically presented challenges in terms of placing a value on it.

By creating a structure to purchase and repackage excess servicing from multiple sellers, Ginnie hopes to create a security with a smoother cashflow and less duration volatility.

The program requires issuers to take base servicing down to 19 basis points (the minimum servicing fee for the GNMA II program) and requires an all-or-nothing submission to the pool. The 19 basis points fee should be uniform for all the securities in the pool. Pools could take the form of a single- or multiple-issuer structure.

Ginnie officials said that multiple seller-backed structures would probably be an attractive investment to Wall Street dealers, as the exposure to a single seller will be reduced by virtue of the diversification in the pool.

Ginnie Mae has recently been making changes that will likely increase the demand for its securities. The Department of Housing and Urban Development (HUD) is proposing to do away with a regulation that specifies the minimum face amount of any security issued by Ginnie.

Also, there has been a series of enhancements to the GNMA II program that allow sellers to retain less servicing and allow Ginnie to strip out IOs, which the servicing repack could trade against. The agency plans to roll out with a stripped MBS product in July.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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