Prodding Ginnie Mae into issuing Real Estate Mortgage Investment Conduits, as the Clinton administration and the Congress is doing, will help the entire mortgage securities market, a top Freddie Mae official believes.

For example, Michael R. McCabe, director of securities marketing for the Federal Home Loan Mortgage Corp., said last week that issuance of Remics by Ginnie Mae will give "investors more choices in the security they can invest in."

He also predicts Ginnie Mae Remics will be an immediate hit in the marketplace.

"There is no concern at Freddie and Fannie about what is happening," said. For one thing, as taxpayers, Fannie Mae and Freddie Mae and their employees will benefit from the deficit reduction implicit in allowing Ginnie Mae to generate a second fee from resecuritizing mortgage-backed securities into Remics.

And in the long run. both Freddie and the Federal National Mortgage Association will benefit, McCabe said.

"New investors uncomfortable with purchasing securities with an implicit government guarantee, such as ours and those of Fannie Mae, will be willing to cut their eye teeth, so to speak, on securities with an explicit government guarantee," he said. "They will then feel more comfortable with Freddie Mac and Fannie Mae securities, and in the long run it could lead to changes in investment policies to allow purchase of Freddie and Fannie Mae securities."

He explained that some foreign investors unclear as to the meaning of "implicit government guarantee" will feel more comfortable with the Ginnie Maes, which are direct obligations of the government. And some pension funds with restrictive investment policies will purchase Ginnie Mae Remics to dip their feet into the water.

"It will bring new investors into the marketplace," McCabe said. "I don't see it taking business away from us."

He explained that while some market observers had feared that a wave of prepayments would have a negative effect on the mortgage securities market, the current declining interest rate environment hasn't soured investors on mortgage-backed securities.

"MBS hasn't been affected by the tremendous prepayment over the last two years," he said. "In fact, businesses and municipalities have been more aggressive than homeowners in refinancing. So, to a certain extent, the declining interest rate environment has helped the MBS market."

The issue arose because the Clinton administration proposed for Ginnie Mae to earn $213 million in fees over the next five years starting Oct. 1 by issuing Remics. The House Banking Committee, looking for alternatives to charging state-chartered banks for their federal examinations, raised the amount that Ginnie Mae would have to generate by issuing Remics to $750 million.

The Senate Banking Committee is likely to seek to raise a similar sum in its version of the budget reconciliation document, according to Senate Banking staffers. Action on such a proposal is likely soon after the Senate returns June 7 from its Memorial Day recess.

But the problem is that while Ginnie Mae is gearing up to do so, it has never issued Remics and it is unclear if the agency can adjust to the pressure quickly.

The Public Securities Association and Wall Street securities dealers had asked over the last several years for Ginnie Mae to issue Remics as a means of offering an attractive alternative to existing MBS offerings. But the Department of Housing and Urban Development didn't act during the Bush administration on the proposal.

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