Some changes to the Federal Housing Authority program are now being considered which, if passed, could affect Ginnie Mae securities down the road, JPMorgan Securities analysts said in a recent report. GNMA market share has steadily dropped over the past 15 years, with FHA borrowers attempting to move out of the program into conventional loans and Jumbos because of the comparatively lower cost. Particularly, the FHA borrowers are forced to pay a 150 basis point up-front insurance premium as well as a 50 basis point annual insurance premium.
Also, aside from the program being relatively high cost, the FHA program has lagged considerably in many of the product innovations found in the prime and subprime sectors: These innovations include IO loans, flexibility in down payments, 40-year mortgages, and MTA, which offers the payment flexibility and low initial payment. The borrower defection rate from the FHA program and into the subprime and prime markets has risen recently, as higher home prices have given borrowers the chance to qualify for these other programs. The increase in home prices has also made it much harder for borrowers to take out an FHA loan since loan limit caps make the FHA loans often too small for many geographical markets, such as California, JPMorgan analysts said.