Fannie Maes unorthodox attempt at joining the ranks of participants in the Ginnie Mae Remic program may have been met with a polite no from Ginnie, but the secondary market giant said it still stands ready to participate. But its unconventional back door means of approaching Ginnie has some underwriters miffed. Now that Ginnie Mae has entered [the Remic] market, we hope they will give serious consideration to allowing Fannie to participate on the same terms as others, said David Jeffers, Fannie Maes vice president of corporate relations, June 15. It could only benefit the market and federal revenues to have as many active participants doing Ginnie Mae Remics as possible. We stand ready to be a profitable, efficient partner. Fannies interest in the Ginnie program has stirred controversy among underwriters and confusion within HUD. Fannie discussed the issue with Ginnie in April, said Jack Flynn, a HUD spokesman, and Ginnie declined. But Flynn added Fannies interest then was in running with the Ginnie Remic program using the resources and experience it developed with its successful Remic. Flynn said Ginnie was unaware of Fannies interest in participating in an underwriting role similar to that of Merrill Lynch, Salomon Brothers, CS First Boston and Bear Stearns, the four underwriters responsible for issuing Ginnies first four Remics. Ginnie, however, said it wouldnt rule out Fannie participation. Theyll be as eligible as anyone else, Flynn said, speaking of the potential participants once the programs initial phase is complete. The selection process for the programs initial phase ended May 19 when Ginnie selected 18 firms as sponsors and underwriters, but more participants will be solicited in the second phase. No timetable has been set for the start of that phase, although there is speculation it could begin by early 1995. Refusing to discount Fannies opportunity, however, may be more of a politically correct gesture than a genuinely positive outlook of the GSEs chances. Flynn said there would still be several political hurdles to cross before Fannie could ever be involved, mostly because of HUDs role as its regulator. Fannies interest in the Ginnie program is totally logical, said one Wall Street mortgage-backed security analyst. As an established issuer of Remics, Fannie has the proven expertise to sell those instruments effectively, he said. But, he added, some underwriters are perplexed by Fannies clear circumvention of Ginnies [underwriter] selection process in approaching Ginnie behind closed doors. Why should [Fannie] be able to simply waltz in when the rest of the participants meticulously followed the procedures, he said. Competitioncertainly competition at this levelneeds to be done in the open. If Fannie wanted to compete, they should have followed the rules. Fannie Mae did not respond to claims it had circumvented the rules. Other analysts have speculated Fannies interest is out of concern that Ginnies Remic will cut into the market previously ruled by it and Freddie Mac. One analyst said the Ginnie Remic had taken some market share, and there may be some mild concern. With market volume down, revenue that wasnt important last year takes on added importance this yearnobody is dismissing opportunities to draw revenue, so there could be some concern there, he said. A Freddie Mac spokeswoman said she knew of no Freddie interest in the Ginnie program. Fannie has outpaced Ginnie at its own game recently. Since its initial Remic pricinga $300 million offering underwritten by Merrill Lynch May 26Ginnie has churned out three additional deals for a total of about $1.3 billion. By contrast, when Prudential Securities priced Freddie Macs first Gold Mac Remic, it was a $1 billion deal. And while the market was friendlier then, analysts have said the comparative interest level hasnt been high. The evidence shows that the program is not proving to be a great success, said one analyst underwriting the Remic program. That has more to do with a tough market and an overpriced program, but it has not met expectations. If you think about how few deals have been done, you have to be underwhelmed, said one mortgage-backed security trader. Here Ginnie Mae launches the most hotly anticipated program to hit the market in years, and the first deal is for just $500 million. The First Boston deal [the third Ginnie pricing] was a $300 million dealthey tried to make it a $500 million deal, but couldnt generate the interest. The lack of interest stems from the higher pricings, he said. The Ginnie Remic is a better product, he added, but its still a matter of economics. Investors are asking themselves, Is it that much better? Right now, Fannie is a cheaper producer of Remics backed by Ginnie than Ginnie is. So even if [Ginnie] is better, theyre not going to overpay for it.
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