Ginnie Mae has dropped a plan to unveil changes in a key mortgage securitization program at the National Secondary Market Conference that opens today in San Diego.

The agency, which has new competition from the Federal Home Loan banks in the secondary market for FHA mortgages, backed off when the proposed change drew fire from investors and bond dealers.

"We are rethinking the proposals. There will be no announcement," said George Anderson, executive vice president of Ginnie Mae. He added that Ginnie got "the message loud and clear" that there is "solid opposition to changing the Ginnie I program."

The Bond Market Association said Ginnie Mae's plan to open Ginnie I securities to odd-coupon loans would be disruptive to the market. Such loans - which have interest rates that do not fall on a whole or half point, such as 7.25% and 7.375% - have been confined to the Ginnie II securities which trade at a discount to Ginnie I's because prepayment rates on the loans are harder to predict.

Mr. Anderson estimates 30% to 40% of Ginnie Mae's FHA volume could be lost because the Federal Home Loan banks can offer better economic value to lenders on odd-coupon loans. Ginnie Mae issued about $110 billion of securities backed by FHA loans last year, according to the Department of Housing and Urban Development.

A source at one of the Home Loan banks said that with the Mortgage Partnership Finance program, lenders can expect to knock at least 20 basis points off the cost of securitizing such loans through Ginnie Mae.

Borrowers are attracted to the odd coupons because they allow a smaller down payment. "Before the Mortgage Partnership program [started buying FHA loans], we had all the odd coupons," Mr. Anderson said.

Lenders' desire for better deals on FHA loans is nothing new. The Mortgage Bankers Association has been talking to Ginnie about the issue for two years, and was partially behind the proposal to open the Ginnie I program. But the Mortgage Bankers proposed limiting the change, whereas Ginnie Mae wanted all odd coupons included.

The Bond Market Association balked at the proposal because it felt that the inclusion of odd coupons would further fragment the mortgage bond market and threaten liquidity.

It said that issues of Ginnie I's with odd-coupon loans would not garner the same respect on the market and therefore would not be interchangeable with other Ginnie I securities. The association expressed concern that trading in the outstanding issues of Ginnie I's could be adversely affected.

Ginnie Mae could have changed its program on its own, but sought Wall Street's opinion, knowing success would depends on investor acceptance.

Mr. Anderson said competition with the Home Loan banks was good for homeowners, noting that Ginnie's mission of reducing cost for homeowners has to come first.

However, he said that Ginnie has to be sure that any decision it makes benefits home buyers without disrupting the flow of capital for affordable housing.

Sources say the odd-coupon plan is not dead. They say the Bond Market Association and Ginnie Mae are assembling a committee to meet this month to study the issue further.

"We want to do something sooner rather than later," Mr. Anderson said. "We will be working with our industry partners to try to make that a reality."

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