Ginnie Paves Way for Lenders to Shed Excess Servicing

Ginnie Mae has issued a final rule that clears the way for its mortgage-backed securities issuers to securitize excess servicing and remove the assets off their balance sheets.

Effective July 5, the final rule clarifies Ginnie Mae's authority to guarantee securities backed by pools of excess servicing cash flows relating to one or more mortgage pools underlying previously issued MBS.

"This program is really designed to support the pricing of Ginnie II securities," said Stephen Ledbetter, GM director of securities policy and research.

Ginnie Mae reduced the minimum servicing fee on Ginnie IIs to 19 basis points nearly three years ago and several issuers expressed interest in securitizing excess servicing fees at the time.

However, the securitization program was put on hold after it was determined the agency had to go through a rulemaking process, which has now been completed.

"Our MBS group will be talking with issuers to see if there is any interest," Mr. Ledbetter said.

By selling excess servicing into the secondary market, issuers can reduce their capital requirements and hedging costs.

The Ginnie director noted, however, that interest in securitizing excess servicing may be reduced due to charges the Financial Accounting Standards Board made earlier this year to simplify its servicing rules. Under a new accounting standard, servicers who elect to use fair value accounting can mark-to-market their mortgage servicing rights and hedging instruments.

"At the margin, that could decrease interest" in securitizing excess servicing, Mr. Ledbetter said. "But if there is a desire on the part of our issuers to participate, we stand ready to work with them." (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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