The Office of Management and Budget has scrapped its proposal to privatize Ginnie Mae, according to the Mortgage Bankers Association.

Under the proposal, which surfaced earlier this month, the government would have auctioned off the exclusive right to buy and securitize FHA and VA loans. That might have created a rival to secondary-market giants Fannie Mae and Freddie Mac.

In a statement Wednesday, the association expressed relief that the measure was shelved, saying the plan had "some anti-housing overtones."

The mortgage bankers had expressed ambivalence about privatization. In Wednesday's statement, executive vice president Paul Reid said lenders were concerned that "the loss of the full faith and credit of the U.S. government would increase the cost of homeownership." The government backing allows Ginnie Mae to get favorable interest rates on its securities and pass the savings on to borrowers.

At last week's MBA senior executives conference in New York, Mr. Reid said privatization did have "some upside potential." For one thing, the plan would have capped the guarantee fee that Ginnie Mae could charge on its loans at the current level of 6 basis points. Mortgage bankers have opposed other plans to increase the fee.

Also, Mr. Reid said at the conference, the privatization plan would have created another outlet for conventional loans. The proposal would have excluded Fannie Mae and Freddie Mac from bidding for the right to securitize FHA and VA mortgages, and would have amended their charters to prevent them from buying such loans.

But in yesterday's statement, Mr. Reid said his organization and the department of Housing and Urban Development urged OMB to reconsider privatization. OMB officials did not return phone calls, while HUD declined to comment.

Analysts said the privatization plan appeared to be designed to create a budget surplus. But HUD Secretary Andrew Cuomo was said to have opposed privatization, preferring to keep Ginnie Mae under his department's wing, because the agency generates close to $600 million a year in revenue.

Ginnie Mae dominates the secondary market for FHA and VA loans with a 98% market share, George Anderson, executive vice president at the agency, told American Banker last week. Last fiscal year it securitized $138 billion of loans made to veterans and low-income and first-time homebuyers.

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