Ginnie Ready to Guaranty Excess Servicing Security

Ginnie Mae is preparing to guarantee its first excess yield security in December so that servicers can sell or hold excess servicing in the form of an interest-only strip.

"We do have some interest from large issuers," according to Ginnie Mae's new executive vice president Michael Frenz. Mr. Frenz previously served as vice president for capital markets.

Ginnie Mae completed its first stripped mortgage-backed securities deal in July, when Goldman Sachs, the lead underwriter, created interest-only and principal-only securities.

Wall Street has been reluctant to do another IO/PO deal, Mr. Frenz said in an interview, because MBS are expensive and there is little demand for IOs because of higher-than-normal prepayment speeds.

But he said, "It shouldn't hurt the excess servicing deals." He indicated that the issuer/servicers are expected to hold the IOs on their balance sheets. "I am not anticipating that these are going to be sold right away." He noted that there are capital advantages to holding a security.

Mr. Frenz is succeeding George Anderson as EVP. Mr. Anderson, a 25-year veteran at the secondary market agency, will continue to serve as a senior advisor to the Ginnie Mae president, working on developing mortgage markets in emerging economies.

Meanwhile, Ginnie president Ronald Rosenfeld may by moving over to the Federal Housing Finance Board. President George Bush has nominated Mr. Rosenfeld to be the fifth member of the Finance Board, which oversees the 12 Federal Home Loan Banks. The nominee has been the president of Ginnie for nearly four years.

During his tenure, the agency improved the pricing of Ginnie Mae II securities, and reduced the minimum servicing fees on Ginnie IIs from 44 basis points to 19 bp.

Mr. Frenz joined Ginnie two years ago. He previously worked for 10 years as a fixed-income portfolio manager for OnBank & Trust Co. in his hometown of Syracuse, N.Y., before it was acquired by M&T Bank. Before joining the Department of Housing and Urban Development in 1999, he worked for a real estate firm, Pioneer Development Co. in upstate New York. As the new EVP, Mr. Frenz said he will be looking for ways to increase Ginnie's business and fulfill the agency's mission more effectively.

"I don't think we have anything planned quite as big as the Ginnie II changes," he said in an interview. "But if we hit a lot of singles, maybe one will turn out to be a home run."

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