guaranteeing securities that banks create from Title I property improvement loans. Officials at Ginnie Mae believe the guarantees will make banks more inclined to lend because they won't have to hold loans on their books and tie up capital. Instead, lenders will be able to securitize the loans, sell them into the secondary market, and, if they wish, keep servicing rights, said Kevin Chavers, senior vice president at Ginnie Mae. Mr. Chavers, who will soon take over as Ginnie Mae's president, said the Title I initiative would make lending and borrowing easier. The securitization initiative will begin next year with a sampling of lenders. "The ability of lenders to recycle funds will add to their liquidity," said Mr. Chavers, whose agency is overseen by the Department of Housing and Urban Development. Borrowers, he said, will benefit from a more easily accessible source of funds. Securitization has certainly worked for home mortgages, with lenders using guarantees by Freddie Mac and Fannie Mae to create a vast secondary market. Fannie Mae has also stepped into the Title I area. The housing finance agency in January agreed to a one-year project to purchase up to $100 million of Title I loans. Fannie Mae has indeed been purchasing the loans and, for the time being, appears to be keeping most of them in its investment portfolio, Mr. Chavers said. The Title I loan program, when run according to mandate, supplies money to low-income borrowers for site improvements, like a new roof or siding. The program has, however, experienced abuse by unscrupulous lenders that charged inflated interest rates. "Not all the participants in this business have folks' best interest at heart," Mr. Chavers said. But, he added, the securitization program, with its extensive documentation, may leave less room for shady home-improvement lenders. "We see a lot of benefits" to the initiative, he said. Ginnie Mae wants its program to give extra liquidity to banks and increase competition by getting more lenders to participate. The initiative may also have the long-term effect of bringing down rates for Title I loans, Mr. Chavers said. "That's one of the things we'll find out when we launch the program." Right now, there is $3.4 billion of Title I financing outstanding, representing 305,000 loans. A small percentage of these loans is securitized using investment banks and credit rating agencies. Mr. Chavers said the amount of loans outstanding offers up plenty of fodder for securitization. Ginnie Mae's pilot will start modestly, with five to 10 lenders whose loans will be securitized using the agency's guarantee. Once $50 million of loans are securitized, the program will pause, and the results will be evaluated. Ginnie Mae will look at how the program meshes with systems at Chemical Bank, which acts as the agency's processing agent - a role expected to continue after Chemical Bancorp's merger with Chase Manhattan Corp. Mr. Chavers said Ginnie Mae also wants at least a few months to monitor payment processes, which will all be electronic. The securitization program is among a number of measures Ginnie Mae plans in order to become easier to work with.
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