While the Bush administration won't act in its final days to implement a real estate mortgage investment conduit program at the Government National Mortgage Association, the incoming Clinton regime will have a blueprint to accomplish the task, courtesy of the Public Securities Association.

A special PSA "working group" said it "strongly recommends that GNMA establish a Remic guarantee program to support the secondary mortgage market and expand the benefit Its programs produce for low- and moderate-income borrowers." The working group predicted a Remic program would reduce the average yield on mortgages that back Ginnie Mac securities by as much as 10 basis points. This would translate into $379 million in savings to borrowers. based on 1991 production levels. Moreover, a Remic program could produce $30 billion to $75 billion in additional federal revenues.

Alfred A. DelliBovi. deputy secretary of the Department of Housing and Urban Development, said there is no chance the PSA recommendations will be adopted in the waning days of the current administration. The PSA prepared its report at the request of DelliBovi, who said he doubted Ginnie Mae's management capacity to handle a Remic program. (See The Mortgage Marketplace, Aug. 24, page 1)

The PSA panel recommended that a Ginnie Mae Remic program be managed by outside service providers, similar to the manner in which the Veterans Administration Remic program is conducted.

The working group concluded in its report "that the incremental risk to GNMA is negligible. GNMA's exposure to losses on the mortgage loans is unaffected by the use of the mortgage cash flows in a Remic structure. The only potential source of risk in a Remic guarantee is the collection and distribution of cash flows from the underlying GNMA securities. This negligible risk could arise because of mathematical errors in the transaction structures that caused the obligation of GNMA to the guaranteed Remic security holders to exceed the available cash flow from the collateral. or from fraud or misappropriation of funds. Both of these potential occurrences are extremely unlikely because of the multiplicity of safe-guards found in the process of Remic issuance and the number of reliable experts consistently reviewing the structures."

The working group recommended that Ginnie Mae should institute a program under which privately formed trusts managed by outside service providers to guarantee Remic securities. This. the group said, would give Ginnie Mae the maximum amount of control. minimize the number of service providers. thereby reducing the risk of fraud and mismanagement. and would provide a homogeneous product for investors. which would increase the liquidity of Remic securities.

TWO obvious candidates as service providers would be the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, both of which use Ginnie Mae securities to back derivatives issued via Remics. The working group noted. however, that this could produce a conflict of interest between the Ginnie Mae Remics and the companies' own programs as well as the role of the new regulator. which will be based in HUD.

"GNMA would need to balance this potential conflict against the advantages of using the large. highly experienced staffs of Fannie Mae and Freddie Mac as the day-to-day managers of its program and of gaining access to their expertise," the working group said.

The working group also recommended against a two-part program that would distinguish between "seasoned" GNMA collateral--loans securitized prior to establishment of a Remic program-and new loans originated after a Remic program is instituted.

"The Working Group strongly urges GNMA to create a single, unified program for all GNMA securities in order to avoid creation of a two-tier market ... which would damage liquidity and reduce the benefits of the program." the report said.

The working group also advised Ginnie Mae to set guarantee fees flexibly. on a Remic-by-Remic basis.

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