A "large west-coast money manager" reportedly dumped approximately $3 billion in Ginnie Mae securities last week, sources say, contributing to an awful week for the Ginnie bid but a glowing week for mortgages in general as the yield curve steepened (see story above).

"Full faith in credit" seemed to be meaningless last week, as $3 billion GNMA bonds were sold off, possibly because of a nice profit in the trade or because of a desire to lock in profits before quarter-end.

"Ginnies got crushed this week," said an MBS trader. "Who cares about full faith in credit? People are thinking that the most liquid thing possible is a better alternative."

Furthermore, Sen. Gramm seemed to once again be hot on the tail of the Federal Housing Finance Board. Calling the agency a "renegade," he announced last Tuesday that he is pushing for an amendment that would cap the amount of mortgage money lent under its Mortgage Partnership Finance (MPF) program.

Although formal language has not yet been introduced, sources said it sounds like it could be a permanent cap and not just an annual cap.

Currently, the MPF program has $13 billion in outstanding loans; the $15 billion cap would effectively shut down the program. Gramm is also upset that in the rule that lifted the cap on the MPF program, the FHFB did not limit investments and gave no indication that any rule regarding limits would be forthcoming.

Senators Gramm and Bond are attempting to pass legislation that would cap the program at $15 billion. Morgan Stanley Dean Witter analysts expect the two to attach the cap as an amendment to the VA-HUD and Independent Agencies appropriations bill.

The analysts give odds at 60/40 that cap legislation will get enacted this year. The better-than-even chances are due to the Senator's power in the Senate. Reps. Leach and Baker appear neutral. FHFB Chairman William Apgar, however, said he is confident that Congress would pass the program.

Lenders are fighting for the program as well; however, the Morgan Stanley analysts believe the lenders aren't really strong enough to oppose Gramm.

CMBS Roundup

What a week for commercial mortgage-backed securities! The Chase conduit officially launched, while the Bear Stearns/Wells Fargo launched with price talk. The UBS/Lehman deal, for $1 billion, priced as well, while a J.P. Morgan conduit launched and the Morgan Stanley single-asset deal for 1345 Ave. of the Americas priced.

The Bear/Morgan/Wells Fargo deal had initial spread of +27-29 to swaps for the 5.75 year, $171 million piece, while the 9.61-year piece, for $529 million, had initial talk of +37-39 to swaps. The collateral contributors were as follows: Wells Fargo, 49%, Bear Funding Corp., 44%, and MSDW Mortgage Corp., 7%.

Apparently the LB/UBS transaction was an easier sale for the CMBS duo, mainly because the origination strategy was explained to investors during the first go-around, for the first LB/UBS conduit.

The Chase deal was a typical on-the-run transaction which had many originators contributing. "It's the most vanilla one I've seen from Chase in awhile," said an MBS investor.

There was very strong interest for both the Chase deal and the MSDW single-asset deal, with 100% of the tranches spoken for across the curve, sources said.

The Chase deal, which was more of a "real" conduit (the Lehman deal was more of a fusion-style deal), did not have many large loans: the largest was for $47 million, and the top-ten loans made up only 30% of the deal.

For the Lehman transaction, on the other hand, the top-ten loans made up a much larger percentage of the deal: there was a loan for $86 million on a mall and another one for $40 million on a mall.

A CMBS trader noted that the underwriting value in terms of LTV were "pretty conservative," and a lot of the loans had defeasance on them.

Commercial MBS spreads held up quite well, even with all of the supply. They held in the 30 to 40 area for 10-year triple-As. While the larger supply might see that number widen a bit, it hasn't happened yet, sources say.

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