Ginnie Mae to Create Securities Backed by Adjustable Mortgages
25 March 2003
Bloomberg News
By Al Yoon
New York, March 25 (Bloomberg) -- The Government National Mortgage Association, or Ginnie Mae, will begin packaging adjustable-rate mortgages into securities for sale to investors in October, said Mel Martinez, secretary of the Department of Housing and Urban Development.
The program will pool mortgages that carry a fixed rate for three, five, seven and 10 years and then adjust to current market rates from the Federal Housing Administration and three-year adjustable mortgages of the U.S. Department of Veterans Affairs into the securities, Martinez said.
"It's in Ginnie Mae's best interest to come out with a hybrid ARM product," said Kevin Jackson, a senior mortgage analyst at RBC Dain Rauscher Inc. "The market is growing."
The securities will offer a fixed rate for the initial period and then a capped adjustable rate, Martinez said.
Ginnie Mae was created in 1968 by HUD to encourage lending to low- to moderate-income homebuyers. It packages mortgage loans into securities that give investors a share of the interest and principal payments, excluding servicing and guaranty fees.
Unlike mortgage debt sold by government-sponsored enterprises Fannie Mae and Freddie Mac, Ginnie Mae securities are backed by the full faith and credit of the U.S. government. Ginnie Mae has more than $600 billion of outstanding securities.
Banks are the biggest buyers of adjustable-rate mortgages because they require assets with a short average life to match their liabilities, Jackson said.
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