Ginnie Mae continues to serve as a strong secondary-market outlet for Federal Housing Administration and Department of Veterans Affairs loans, but continued declines in overall mortgage-backed security issuance could pose problems down the road, according to the Government Accountability Office."Further declines in Ginnie Mae's volume could potentially have implications for borrowers, the liquidity of its securities and federal revenues," the GAO said. Ginnie Mae guaranteed the issuance of $90.3 billion in MBS in fiscal year 2005, down from $149.1 billion in fiscal 2004. Ginnie's share of the MBS market declined from 42% in 1985 to 7% in 2004. The congressional watchdog and auditing agency also noted that the share of high-credit-quality government-backed loans going into Ginnie Mae-guaranteed securities is declining as well. Further declines in credit quality could "increase servicing costs and interest rates for new borrowers," the GAO says in a report titled "Ginnie Mae Is Meeting It Mission, but Faces Challenges in a Changing Market." Ginnie executive vice president Michael Frenz welcomed the conclusion that his agency is fulfilling its mission. "We agree with the report's analysis of a number of challenges facing Ginnie Mae, and appreciate GAO's acknowledgement of the initiatives that Ginnie Mae has undertaken in order to address these challenges, such as developing new products and improving disclosures to investors," Mr. Frenz said.

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