The Mortgage Bankers Association is frustrated over Wall Street's rejection of an MBA proposal to change the way some Ginnie Mae securities are marketed.

"We are very disappointed," said Robert O'Toole, MBA senior staff vice president for residential finance. "We think they prejudged the market."

Mr. O'Toole was reacting to a letter sent last week by the PSA Bond Market Trade Association to Ginnie Mae's president, Kevin G. Chavers.

There may be "undesirable consequences" if the MBA measure goes through, the PSA letter states. "Such revisions have potentially far-reaching impacts on the mortgage securities markets."

The PSA's members include Wall Street underwriters and traders whose support was seen by some as crucial to the measure's going forward.

Despite the setback, the MBA is proceeding by requesting the change through its own letter to Mr. Chavers. "If Ginnie Mae will be positive and originators form coupons, it would be up to Wall Street to create a market," Mr. O'Toole said.

A spokesman for Ginnie Mae said the agency-formally the Government National Mortgage Association - had no immediate comment on either letter.

The PSA is objecting to the MBA's request that more loans be classified as Ginnie Mae I securities.

The loans currently trade as Ginnie Mae II securities, a classification that demands higher returns to investors because of greater volatility. This translates into higher interest rates for borrowers.

Interest rates could potentially decrease if the rate cap for Ginnie Mae I securities was raised to include more loans, the MBA said. The lenders group proposes an increase to 99 basis points from its current limit of 50 basis points above the pass-through rates that investors receive. The MBA proposal would also cap the pool's average coupon at 75 basis points over pass-through.

The separate letters by the MBA and PSA are the latest developments in a disagreement that grew out of a joint effort the two groups launched late last year. During discussions, the MBA agreed to certain limits and conditions, like providing the new securities with suffixes to differentiate them from mainstream Ginnie Mae I securities.

But the PSA and the MBA split last month, with the PSA saying market confusion and volatility could result if any changes are made to the current Ginnie Mae I structure.

The PSA's letter was written by Lawrence W. Doyle, chairman of the group's mortgage securities trading practices committee and a managing director at UBS Securities, a large player in the mortgage securities field.

If Ginnie Mae sides with the MBA's proposal, "the (securities) market will ultimately decide its merits," Mr. Doyle states.

Since PSA members make up a good deal of the market, their opposition could kill the measure, some observers say.

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