WASHINGTON -- Lenders expect Ginnie Mae's proposed Remic program to slightly reduce the cost of Federal Housing Administration and Veterans Administration home loans.
William R. Godfrey, senior vice president of All Pacific Mortgage Co., estimated that the Remic -- the acronym stands for real estate mortgage investment conduit -- would cut the discount points that borrowers pay on government loans by a quarter of a point.
John S. Philips, senior vice president of Crestar Mortgage Corp., agreed.
That decrease -- about $250 on a $100,000 loan -- would also slightly raise the volume of government-insured loans, lenders said. "It's not enough to get too excited about. It's what it is -- a quarter of a point," said Mr. Philips.
Ginnie Mae securities are pools of loans insured by the Federal Home Administration and the Veterans Administration.
Earlier this month, Congress gave the Government National Mortgage Association new authority to issue Remics.
Remics are made by pooling pass-through mortgage-backed securities and carving up their cash flow into securities with many different maturities.
The Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. each pool their securities into Remics. In addition, Fannie Mae and Freddie Mac have also issued Remics made up of Ginnie Mae securities.
"What Remic allows you to do is chop up cash flow to meet different investor needs. Therefore, you increase demand for the underlying security," explained Debbie Cohen, vice president of MBS capital markets at Fannie Mae.
Higher demand for Ginnie Mae securities will pull up their price and push down the interest rates that consumers pay on the loans that make up the securities, said Ms. Cohen.
Further Changes Foreseen
In addition to cutting loan rates, the Remic should lead to some changes in the underlying Ginnie Mae security, said Robert O'Toole of the Mortgage Bankers Association. The trade group is discussing these with Ginnie Mae staff, but Mr. O'Toole declined to elaborate.
The next announcement from Ginnie is likely to come in the form of a request for bids to run the Remic program.
With only four additional staff members budgeted to administer the new Remic, it appears that most of the sophisticated financial modeling and administration of the program will be done outside the government agency.
A Role for Other Agencies?
The obvious choices would be companies such as Fannie Mae, Freddie Mac, and Wall Street firms that are heavily into the Remic business.
Ms. Cohen, who is a chief architect of Fannie's Remic program, would not comment on whether Fannie Mae is talking to Ginnie Mae about running the new Remic.
Freddie Mac officials were not available for comment. Once Ginnie Mae requests bids to run the Remic program, it will likely be another four to five months before a company is chosen and submits a detailed Remic plan to Ginnie Mae, Mr. O'Toole said.
"Unfortunately, I think they're going to get bogged down in contracting," he said. "Our feeling all along is that it's a good thing, and they should get on with it."