An Insider look at Ginnie Mae MBS

As a result of my postings I get a fair amount of off the grid emails. They run the gamut. On a recent piece re: the Agency’s stock price I got, “You could not find your behind with your own two hands”. The note was sent to me in Cyrillic script. Google translate gave me the gist of the message. Apparently they are trading the Agencies from the Long side in Kazakhstan.

I also get comments from people who are more knowledgeable than I am on a topic that I write about. I got the following analysis of a Ginnie Mae security from someone who has given me his or her permission to post it. This person works on Wall Street and does not want their name revealed. This analysis jives with recent reports that FHA is suffering losses and may need a bailout(WSJ 9/4). Enjoy. Hat Tip Jswede.

I’m continually astounded by a lot in this market, but perhaps nothing has been as jaw-dropping as the performance of the GNMA MJM (multi-jumbo mortgage) wrapped loans made starting about 1 year ago. These were the ‘mod’ loans made especially for ‘problem zip codes’ (read: high-priced, low equity and free-falling CA, AZ and FL) to support those markets. To make these high priced homes eligible for FHA, the max loan amount was stretched to over $700k. As there were ‘problems’ in these properties to begin with, the LTV averaged around 95%....

here’s a look at a random GNMA MJM 6%cpn (G2 4216) collateral issued in Aug 2008 – around 1300 loans to start, original principal $1b, median 95% LTV, WAOLS ~$466k… 94 loans paid off (how many short sales do you think?)… another ~225 30+ days delinquent… reminder, this is ONE YEAR LATER and July numbers….



Here’s a GNMA MJM 7%cpn (G2 4218) from Aug 2008 – only 26 loans in this one, $12mil at issue, 95% median LTV, WAOLS ~$498k…. 15 of those loans are delinquent. 7 loans are 90+ days – several probably never made a payment.



According to your Tuesday, July 21, 2009 entry, “Fed Mortgage Report – What’s Ginnie Mae Up To?”, GNMA gtd loan amount outstanding has expanded by close to 50% from 2Q 08 to 2Q 09….. if these MJM’s are any sign, in my estimation, we (tax-payers) will be taking losses with 20-40% severities on those new loans…

The more traditional GNMA securities made up of ‘conforming loan amounts’ are likely not much better: mostly bought with 3.5% down to 1st time buyers – oh, and they also got to monetize their tax-credit, so really have no skin in the game at all….


Here’s a random conforming loan size GNMA pool (G2 4170) from June 2008 – 12,224 loans, $199k WAOLS, 97% median LTV, $2.46bil original pool size:


These conforming loans don’t look too much better, huh? These losses will be just huge…. I mean, these numbers are just 1yr later… this will be perhaps a more massive transfer of losses to the upper income tax-payer than anything else we’ve seen so far….