A Message from Terry Carr, Senior Advisor of Communications and Congressional Relations:
Last month, we discussed many of the initiatives underway at Ginnie Mae designed to strengthen the liquidity of our mortgage-backed securities (MBS) programs, bring more capital to the market and, ultimately, better support the housing finance system. One of our top priorities is to explore the potential consolidation of the Ginnie Mae I MBS program into the Ginnie Mae II MBS program.
Already receiving much attention across the industry, this concept has been well-received. The consolidation is intended to increase the liquidity of Ginnie Mae’s MBS program, as Issuers have shown a notable preference for the Ginnie Mae II MBS in recent years. Since 2010, issuance of Ginnie Mae IIs has been increasingly outpacing issuance of Ginnie Mae Is. Moreover, in May 2013, Ginnie Mae II single-family issuance was four times the volume of Ginnie Mae I single-family issuance. Among other things, Issuers prefer the expanded note interest rate range Ginnie Mae IIs offer, as well as the ability to submit loan packages of varying sizes into larger, geographically diverse and multiple lender-based, MBS pools.
Ginnie Mae distributed a proposal for consolidation to a sub-set of Issuers, investors, broker-dealers and other key stakeholders in April. We requested input on some of the proposal’s key elements that outline how the consolidation of the two programs might work.
The core of the proposal includes the following:
- The issuance of Ginnie Mae Is will discontinue and only Ginnie Mae II issuance will be available.
- Ginnie Mae will offer a tender mechanism to permit conversion of existing Ginnie Mae I pools into Ginnie Mae II pools.
- Conversion of Ginnie Mae I pools would be voluntary. Ginnie Mae Is that would not be converted would maintain their original To-Be-Announced (TBA) eligibility.
- The 20th remittance date would be adopted as the standard for all converted Ginnie Mae I single-family pools.
Ginnie Mae held several stakeholder meetings over the past three months to gather feedback, specifically with the intent to uncover any unforeseen outcomes a potential consolidation could trigger. Senior Vice President of the Office of Capital Markets, John Getchis, observed that industry feedback has been very favorable overall. He acknowledged, however, that some investors voiced concern about the specific process surrounding the conversion. They noted possible costs involved with the transition. For example, the five-day payment delay associated with the conversion to the Ginnie Mae II security would, in fact, incur a cost. A small transaction fee could also result, as well as possibly an adverse pricing effect on all outstanding Ginnie Mae IIs. In addition, it is currently unclear what the consolidation would mean for the value of any outstanding Ginnie Mae Is.
Ginnie Mae Issuers have concerns of their own as well. The most prevalent being the possibility of losing the ability to issue TBA-eligible custom pools and the pricing premium associated with them. Today, only Ginnie Mae I custom pools are TBA eligible. Ultimately, the level of liquidity associated with Ginnie Mae MBS is a function of the TBA eligibility criteria. The consolidation proposal is designed to modernize the current TBA eligibility criteria to represent a broader population, yet refine the profile standards of the deliverable MBS pools.
Ginnie Mae has been receptive to all stakeholder concerns and is committed to continuing candid, open discussions throughout each phase of the proposed consolidation plan. And, the issues we have discussed here will certainly be addressed. Our next step is to develop a more detailed blueprint that outlines the mechanics of how the Ginnie Mae I to Ginnie Mae II MBS consolidation would be managed. A major component of that blueprint will be determining whether a tender mechanism for investors to convert their Ginnie Mae I holdings to Ginnie Mae II securities will be necessary, and if so, how it will operate.
We remain committed to preserving the health of Ginnie Mae and its programs. If we decide to move forward with the consolidation of these two securities programs, we want to assure as seamless a transition as possible. We welcome any and all of your questions and suggestions about this process and will notify you of further developments in the coming months.
Senior Advisor, Communications and Congressional Relations