The Department of Housing and Urban Development (HUD) is proposing to do away with a regulation specifying the current minimum face amount of any security issued by Ginnie Mae. The existing regulation says the face amount of any security cannot be less than $25,000. Its removal will allow Ginnie to offer alternative denominations of its securities. The proposal is currently under a comment period ending June 14.
Stephen Ledbetter, director of securities policy and research at Ginnie, said that the agency's objective is to "remove unnecessary hurdles that limit investors' ability to own Ginnie Mae securities." He added that currently investors could own Fannie Mae and Freddie Mac securities in $1,000 increments, whereas Ginnie requires a $25,000 minimum. This does not make sense considering that Ginnie Maes are of higher quality as they carry the full faith and credit guarantee of the U.S. government, said Ledbetter.
He added that, at the margin, this proposed amendment could only help the agency. "The notion is to broaden the investor base," said Ledbetter. The removal of the required minimum will likely increase the demand for Ginnie securities, thus creating more value, and ultimately resulting in less costs for lower- and moderate-income homeowners.
Aside from this proposal, Ginnie is currently moving on numerous fronts to increase the demand for its securities. Recently, changes were made to the GNMA II program. The agency has also announced its intention to roll out a stripped MBS product in July. Fannie and Freddie have a similar program. The stripped product results from the creation of interest- and principal-only carve-outs using a Grantor trust structure, rather than the usual REMIC platform. The trust supposedly provides more liquidity to the strips that are created.
"All of these changes share the central mission of broadening the investor base for Ginnie Mae securities, which is part of delivering on our mission," said Ledbetter.