Home lenders are cautiously optimistic about plan in Congress to separate Ginnie Mae from the Department of Housing and Urban Development.

The Republican staff of the House Banking Committee is studying whether to propose merging the agency with the HUD's FHA program, making it a government-owned corporation that has some features of a private business, a staff member said.

The new entity would remain government-owned and would not have private shareholders, but as a stand-alone company it would be free to recruit and retain executives at salaries above the civil service pay grade.

"Moving to a separate, independent, full-owned corporation makes a lot of sense," said Brian Smith, policy director of America's Community Bankers, at the group's secondary market convention in Phoenix. He said the plan would give Ginnie Mae and the FHA loan program "more flexibility and better access to better qualified personnel."

A main goal of the Republican legislative staff is to separate Ginnie Mae and the FHA program from HUD, which is headed by Secretary Andrew Cuomo, an adviser to Vice President Al Gore. Getting Ginnie Mae out of HUD's direct control would inject more competition into a sizeable portion of the mortgage market, Republicans say.

Mr. Cuomo has been an aggressive overseer of the government's role in the housing market. His agency last month threatened Fannie Mae with disciplinary action unless it produced borrower information for a review of minority and low-income lending.

Mr. Smith said the plan was "completely unobjectionable" to his group, which represents thrifts and community bankers. In fact, he said, it is "highly desirable, because it gives better access to lower end of the market for FHA and VA loans."

Revamping Ginnie Mae could create opportunities for banks and private lenders in the secondary mortgage market and provide more competition for two other government-sponsored mortgage giants, Fannie Mae and Freddie Mac, advocates said.

Though proposals to privatize Ginnie Mae have failed in the past, Mr. Smith said, "the planets could be more favorably aligned for this."

A Republican aide said this was not a plan to privatize Ginnie Mae but rather to separate the enterprise from HUD, thereby reducing the government subsidies for FHA mortgage insurance and Ginnie Mae securities.

Ginnie Mae guarantees that investors receive timely principal and interest payments on mortgage-backed securities issued by certain banks and other private lenders. The mortgages are insured by the HUD's VA loan program, the Rural Housing Service (formerly the Farmers Home Administration), and the FHA program.

Because Ginnie Mae is part of HUD, its bonds are viewed as being backed by the full faith and credit of the U.S. government, and it can pay a lower interest rate than private mortgage lenders.

This column is based on reporting by Bloomberg News and Robert Julavits.

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