The Mortgage Bankers Association is working with representatives from Wall Street on a proposal that could make Ginnie Mae home loans more appealing to borrowers.

The MBA wants more loans to qualify as a type of Ginnie Mae security that trades easily. The so-called Ginnie Mae I securities have relatively predictable prepayment rates, so Wall Street doesn't demand higher yields to offset volatility.

Savings could be passed along to borrowers in the form of lower interest rates, according to a proposal that the MBA plans to submit to Ginnie Mae's president, Kevin G. Chavers.

"We think the proposal could create greater efficiencies for consumers," said Phyllis Slesinger, the MBA senior director spearheading the plan.

"Right now, the pricing of certain Ginnie Mae loans isn't as good as the rates offered to conventional borrowers," Ms. Slesinger said.

She said the effort was being done with input from PSA Bond Market Trade Association, which represents Wall Street investment banks and brokers. The PSA and MBA have formed a joint task force to consider "a wide range of issues," including the impact the change could have on institutional investors, a PSA spokesman said. The PSA had not endorsed the proposal as of Monday afternoon.

A spokesman for Ginnie Mae, formally the Government National Mortgage Association, said it would not comment until it received the proposal.

Ms. Slesinger said the letter could go out this week, and she is optimistic about its reception. Ginnie Mae was "interested in what we had to say" during informal discussions earlier this year, she said.

The change would affect Ginnie Mae securities that are backed by loans to people with low or moderate income. These loans are made through the Department of Housing and Urban Development, the Department of Veterans Affairs, and the Farmers Home Administration.

Borrowings qualify for Ginnie Mae I pooling if their rates are no more than 50 basis points higher than "pass-through" rates investors receive. Servicing fees and discount points paid by borrowers affect the pool rates.

The cap hampers borrowing because only certain combinations of rates and points can be used to qualify for the Ginnie Mae I program, Ms. Slesinger said.

All other loans are pooled as Ginnie Mae II securities, which are more volatile and less popular on Wall Street.

The MBA would like to see the Ginnie Mae I cap raised to 99 basis points as long as the pool's average coupon isn't 75 basis points above the pass- through rate.

Insurance companies and pension funds are big buyers of Ginnie Mae securities. Additionally, more than 100 mutual funds are structured to carry at least 65% of Ginnie Mae securities. The group includes funds from the Dreyfus unit of Mellon Bank Corp. and the Stagecoach arm of Wells Fargo & Co.

Investment advisers say the proposal could increase prepayment volatility because the pools would contain a wider assortment of rates.

But at the same time, the change could make a wider group of securities, including those that are now confined to Ginnie Mae II pools, easier to trade, said Lakhbir Hayre, a managing director in the mortgage division of Salomon Brothers.

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