In 1968 Congress established the Government National Mortgage Association, commonly known as Ginnie Mae, as a government-owned corporation within the Department of Housing and Urban Development (HUD). Today, Ginnie Mae securities are the only mortgage-backed securities, primarily comprised of FHA & VA loans, that offer the full faith and credit guaranty of the United States government. Remember that Ginnie Mae does not buy or sell loans or issue mortgage-backed securities (MBS), unlike Fannie Mae & Freddie Mac. Instead, Ginnie Mae guarantees investors the timely payment of principal and interest on MBS backed by federally
insured or guaranteed loans (FHA/VA, among others). Ginnie Mae MBS are created when eligible mortgage loans (those insured or guaranteed by FHA, the VA, RHS or PIH) are pooled by approved issuers and securitized. Ginnie Mae MBS investors receive a pro rata share of the resulting cash flows (again, net of servicing and guaranty fees).
Speaking of securities and those backed by mortgages, remember that the Fed has no direct control over mortgage rates. Rates for mortgages are essentially set by those investors who are willing to purchase mortgages or mortgage-backed securities from Wall Street. Rates have risen lately to compensate for the threat of inflation, which erodes the value of investors’ returns, and investors are hesitant to buy some types of mortgage-backed securities because so many borrowers have defaulted in recent years leaving them with nearly worthless investments. With low demand for these products on Wall Street, lenders want to keep mortgage rates (and therefore the yields on securities) high enough to attract investors. So, Fed rate cuts have made it cheaper for lenders to borrow money, but until recently, lenders were not passing much of that savings along to fixed-rate loan customers.
Today the market continues to improve! The yield on the 10-yr is down to 3.33%, and mortgage prices are better by almost .250 in price. (The bond markets are closing early today, and are closed tomorrow for Good Friday, so investor rates can become “squirrelly”.) Jobless Claims climbed 22,000 last week to 378,000, partly due to layoffs caused by an auto industry strike, compared with a revised 356,000 the prior week. The four-week moving average of initial claims, which gives a better underlying signal on the state of the labor market, rose to 365,250, the highest level since October 2005 in the aftermath of Hurricane Katrina.
PMI’s guidelines have been modified to reflect separate conforming (up to $417,000) and conforming jumbo ($417,001 – $650,000) loan amount eligibility. Higher loan amounts ($650,001 – $729,750) are available for those property locations identified on the HUD Fannie/Freddie list. Additionally, they are making some guideline changes in areas representing potential layering of risk, such as investor, limited documentation, and interest-only loans, as well as property types such as 3- to 4-units, co-ops, and manufactured homes.
In more good news for mortgages, yesterday OFHEO, Fannie Mae and Freddie Mac today announced a major initiative to increase liquidity in support of the U.S. mortgage market, adding up to $200 billion of immediate liquidity to the mortgage-backed securities market. According to OFHEO, this gives FNMA & FHLMC the ability to buy up to $2 trillion in mortgages this year! OFHEO announced that it would begin to permit a significant portion of the GSEs’ 30 percent OFHEO-directed capital surplus to be invested in mortgages and MBS, and both companies announced that they will begin the process to raise capital & maintain overall capital levels well in excess of requirements while the mortgage market recovers in order to ensure market confidence and fulfill their public mission.