Subprime Lenders Taking a Bite From Ginnie Mae's Issuance Volume

The current year is shaping up to be one of the worse in five years for the Government National Mortgage Association's single-family program - and the agency well knows it.

"It's undeniable that we're off quite a bit this year," acting GNMA president Michael Frenz said last week.

During the first seven months of its fiscal year, the Government National Mortgage Association guaranteed $48.4 billion in securities backed by single-family loans.

Based on the current run rate, Ginnie Mae could wind up backing just $83 billion in single-family MBS in fiscal 2005.

Two years ago, during the height of the refi boom, the agency issued $208 billion in single-family product. (GNMA securities include loans insured by the Federal Housing Administration, Department of Veterans Affairs and the Rural Housing Service. See related story on the FHA.)

Mr. Frenz said the agency has been losing business to the subprime market, and to a lesser degree to interest-only and payment-option loans.

He noted that the agency wants to gain back market share and is sanguine about FHA's new five-year hybrid ARM product, which is a 2-2-6 loan (2% cap on the initial rate increase, 2% maximum increase per year and 6% over the life of the loan).

The loan's predecessor, a 1-1-5 product, was not well received in the market place.

Mr. Frenz said the agency's issuance decline from 2004 compared to 2003 reflects the decline in the overall production market and is not as bad as it seems. (In 2003, the mortgage industry funded a record $3.9 trillion in loans, according to figures compiled by this newspaper.)

However, on a market share basis, GNMA's current performance looks a bit shaky.

Based on first-quarter volumes, subprime production is on track to account for 20.3% of all loans funded this year compared to just 3.5% for federally backed mortgages guaranteed by GNMA.

Ten years ago, GNMA had a production market share of 11.1% compared to 5.5% for subprime.

The figures indicate a reversal of fortune of sorts for the two sectors. Mr. Frenz said GNMA and FHA want to turn around their declines and gain market share.

It is working with lenders on what it can do differently to improve the program, he said. He also noted that because of high housing costs (and mortgage amounts) in California, GNMA is limited to what it can guarantee there. California is the nation's largest loan market.

SNAPSHOT: Annual GNMA Issuance

2005 est. $2.65 Billion

2004 $2.79 Billion

2003 $3.90 Billion

Source: Mortgage Industry Directory (11th Edition)

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