Ginnie Mae Buydown Pool

Well into the 1990s, Ginnie Mae securities composed the oldest, best-known, and largest sector of the pass-through market. Ginnie Mae 30-year securities were dominant until late 1994, when Fannie Mae slid into first position. Ginnie Mae now accounts for about 16% of the 30-year pass-through market; in 2004, Ginnie Mae issued about 12% of total pass-throughs (ARM and fixed rate, 15-year, 30-year, and so forth).

Ginnie Mae pools are composed only of loans insured or guaranteed by a small number of federal programs. Eligible loans are those originated under specific programs of the FHA, the VA, and the Department of Agriculture under the Rural Housing Service (RHS) program, as well as those guaranteed by the Secretary of Housing and Urban Development (HUD) under Section 184 of the Housing and Community Development Act of 1992 and administered by the Office of Public and Indian Housing (PIH). However, almost all loans backing Ginnie Mae pools are FHA and VA loans, and the FHA loans are the vast majority of those.

Ginnie Mae MBS Programs

Ginnie Mae administers two primary pass-through programs, the original Ginnie Mae program, Ginnie Mae I, in existence since 1970, and Ginnie Mae II, established in 1983. The guarantee is essentially the same under both programs and provides for timely payment of current monthly interest and scheduled principal, as well as unscheduled principal repayments.

The Ginnie I program yields the most highly standardized, homogeneous mortgage-backed securities (MBS) in the marketplace. All mortgages in a pool must be the same type (e.g., single-family level-payment fixed-rate), issued by the same issuer, and carrying the same mortgage rate. Fifty basis points of servicing and guarantee fee are "stripped," or retained by the issuer/servicer, resulting in a security paying a coupon 0.5% less than the underlying mortgage rates. Payments on Ginnie Mae I MBS are made directly to investors by the issuer/servicer with a stated 14-day delay (i.e., payment is made on the fifteenth day of each month). The minimum pool size is generally $1 million.

The mortgages must have a first payment date no more than 48 months before the issue date of the securities. Likewise, 80% of the loans must have original maturities within 30 months of the latest maturity. Additionally, 90% must have maturities of 20 years or more. An exception—which has fostered a 15-year single-family Ginnie Mae pass-through sector—permits loans with maturities of less than 20 years so long as 90% have the same term and special disclosure procedures are followed. Also, mortgages must begin amortizing by the month following the month in which the pool is issued. (Age and maturity requirements for Ginnie I pools generally apply to Ginnie II pools as well.)

Certain single-family government mortgages are segregated into specific Ginnie I pool types.2 The vast majority are single-family, level-payment mortgages (pool type SF), and upwards of 90% of those have 30-year terms. In addition, there are small amounts outstanding (under $200 million) of pools of buy-down mortgages (BD; the payment is "bought down" by a builder or developer, but a small amount may be included in standard SF pools subject to disclosure requirements). Programs exist for graduated payment-mortgages (GPM) and growing-equity mortgages (GEM) as well, but borrower demand for these loan types is light. Likewise, a program is available for manufactured-home loans, but private lenders now dominate this market.

The Ginnie II program allows multiple-issuer pools to be assembled, thereby allowing for larger and more geographically dispersed pools, as well as the secu-ritization of smaller loan packages. A wider range of underlying mortgage rates is permitted in a Ginnie II MBS pool, and issuers are permitted to take greater servicing fees—ranging from 25 to 75 basis points. It follows, then, that the rates on the underlying mortgages may lie within a 50 basis points range (in contrast

2. In addition, Ginnie Mae guarantees pools of FHA-insured construction and permanent loans on "projects" such as multifamily buildings, hospitals, nursing homes, and group practice facilities. These tend to trade in the commercial mortgage-backed securities market, along with Fannie Mae and Freddie Mac multifamily-loan-backed securities.

to the Ginnie I requirement that they all be the same).3 The minimum pool size is $250,000 for multilender pools and $1 million for single-lender pools. Payments on Ginnie II MBS are consolidated by a central paying agent; this arrangement necessitates an additional five-day payment delay (payment is made on the twentieth day of each month).

Single-family, level-pay (SF) loans are also the dominant loan type securi-tized under Ginnie II pooling rules. Government ARM loans are securitized exclusively as Ginnie IIs. In addition, the Ginnie II program is a more important outlet for buydown pools. Of lesser importance are programs for GPM, GEM, and manufactured-home loans.

As we mentioned earlier, investors tend to prefer larger pools. In addition, below a certain remaining principal amount, pools become harder to trade. Accordingly, following the lead of the GSEs, Ginnie Mae added a Platinum pool option under its CMO (multiclass) program. This option allows investors to recombine smaller pools that have uniform coupons and original terms to maturity into a single certificate in amounts of $10 million or more. This is a useful strategy to improve the liquidity of small or paid-down pools. Because they consolidate payments on the underlying pools, these repooling options also appeal to investors seeking to reduce accounting and administrative costs.

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Responses

  • peter
    How to pool fha loans into ginnie mae?
    5 years ago
  • maria dickson
    Do ginnie mae pools exist?
    5 years ago
  • louis
    How to post principal repayment on mortgage backed securities?
    5 years ago
  • christina hofmann
    What is a level payment mortgage buydown?
    5 years ago
  • delfino
    Why are gnma loans sold 50 basis points below?
    5 years ago
  • lucrezia
    Are lenders required to buy out VA loans from ginnie mae pools?
    5 years ago
  • CEREDIC
    How to allocate loans into a Ginnie Mae pool?
    4 years ago
  • Jack
    Can GNMA Buydown Pools be included in a platinum pool?
    4 years ago
  • lisa
    Why are GNMA Multifamily Certificates sold at 102?
    3 years ago
  • ROSE
    How to redeem a gnma mortgage backed certificate?
    3 years ago

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