WE’RE HEARING it’s always difficult to put an old dog down but it seems inevitable that the old Ginnie Mae I pools are on their way out.
Single-issuer Ginnie I pools have been the mainstay of the Ginnie MBS program for decades.
Three years ago Bloomberg didn’t even quote Ginnie II pricing on their terminals.
But that has changed as
Three years ago, Ginnie Is were trading at 6 to 8 ticks higher than Ginnie IIs. That has “flipped,” Tozer said. Now Ginnie IIs are trading at 6 to 8 ticks better than Ginnie Is. (If an MBS trades 6 ticks higher that means the price is up 6/32nds.)
“Mortgage bankers are choosing Ginnie IIs because the price is better,” he said.
In September, Ginnie issuers securitized nearly $28 billion in FHA, VA and Rural Housing single-family loans and only $1.2 billion were placed in Ginnie I MBS.
Because they are multilender pools, Ginnie IIs have more geographic diversity and prepayment speeds are more predictable.
Issuers can buy delinquent loans out of a pool after a borrower has missed three monthly payments. When a single-issuer decides to buy out loans, it can lead to “massive prepayments,” Tozer said, which reduces the investor’s expected return.
In multiple issuer MBS, the prepayments generally even out because some issuers will buy out loans once they became 90 days delinquent and others won’t. They will just advance payments to the MBS investors.
The Federal Home Loan Bank of Chicago is expected to get final approval to become a Ginnie Mae issuer soon. The Federal Housing Finance Agency gave the FHLB preliminary approval just after Labor Day.
Under the new program, the Chicago FHLB would be the issuer and act as a conduit for other participating FHLBs. So the Chicago FHLB could go with a Ginnie I or Ginnie II MBS execution.
Tozer noted that a FHLB Ginnie I may trade better than other Ginnie Is because the FHLBs will be contributing loans from community banks all across the U.S. It would essentially be a multilender pool offered by a single-issuer.
“Some money managers have indicated they would pay more than the TBA market price because of the multiple lenders in a Ginnie I pool and the fact that the community bankers may have better performing loans,” Tozer said in an interview.
However, the Chicago FHLB would be attracted by the better pricing on Ginnie IIs.
Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.
