Ginnie Seeks Comfort as It Makes 2014 Plan for MBS

Consolidating Ginnie Mae I and II securities should not be all that hard. But the head of the secondary market agency stresses that he wants to ensure that servicers and investors are comfortable with the plan before the implementation process starts in 2014.

“We really want this to be a positive experience for everyone,” according to Ginnie Mae president Ted Tozer.

Ginnie Mae officials have already sounded out investors, industry groups and issuers of Ginnie Mae mortgage-backed securities about going forward with just one security. And now the officials are working on a “roadmap” that will outline the mechanics of how the consolidation process will be managed.

Tozer wants the roadmap finalized by yearend after seeking comments from stakeholders.

In the past few years, issuance of Ginnie II MBS has increasingly outpaced Ginnie I MBS.

“Everyone recognizes Ginnie Is aren’t as popular as they used to be,” according to one industry official. And the outstanding amount of Ginnie I MBS is shrinking. This has raised concerns about the future liquidity of Ginnie Is. In June, Ginnie Mae issuers sold nearly $32 billion in Ginnie Mae IIs to Wall Street investors and only $6.8 billion in Ginnie Is.

As proposed, Ginnie I issuance would stop and only Ginnie IIs would be issued going forward. Investors would have the option of converting existing Ginnie I pools into Ginnie II pools. But such conversions would be voluntary. The main difference between Ginnie Is and Ginnie IIs involves servicing fees and remittance dates where the servicers have to make the monthly payments to the MBS investors. Ginnie I issuers must retain a 44 basis point servicing fee when selling their securities into the secondary market. But Ginnie II issuers have the option of reducing the 44 basis point servicing fee to 19 bps.

The remittance date for Ginnie I MBS is the 15th of the month. For Ginnie II, it’s the 20th. If Ginnie Is and IIs are consolidated, the servicers would prefer to have one remittance date. As proposed, investors can convert their Is into IIs with a remittance date on the 20th.

But servicers are concerned about the investors that don’t convert and the operational issues of having two remittance dates.

Once the consolidation roadmap is completed, Ginnie Mae officials will decide when to start the implementation process. “We don’t want to put lenders or investors into an awkward position,” Tozer told NMN. “We are going to have a reasonable transition time once we lay out the roadmap so they can plan accordingly,” he said.