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Government guarantee expected for one-third of MBS in 2011

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Government-backed bond issuer Ginnie Mae's share of mortgage-backed securities issuance should reach 32% in 2011, continuing a steady growth seen after the financial crisis of 2008, Deutsche Bank analysts said. Ginnie Mae guarantees timely payment of principal and interest on federally insured loans to investors of MBS. While the issuance of these Ginnie-backed securities slipped 1.4% to $413 billion in the fiscal year of 2010, 30% of all MBS issued was backed by the agency. It's grown every year since 2007 when only 9% of MBS issued that year was backed by Ginnie Mae. Deutsche Bank analysts said some of the new issuance will follow the Fannie Mae and Freddie Mac pursuit of lenders for violations of reps and warranties. As a result, lenders will be "gun-shy," leaving the Federal Housing Administration and the VA as "the only game in town." Investor demand might also rise for Ginnie Mae issuance as banks begin to position for Basel 3 capital ratio requirements. The Federal Deposit Insurance Corp. asked banks for comment on the new requirements Wednesday. Deutsche analysts said the FDIC has between $8 billion and $12 billion in mortgage securities set for the market with the full-faith and credit guarantee of the U.S. government, and the National Credit Union Administration has another $6 billion to $12 billion ready for the market, too. "But Basel 3 could push more banks to securitize seasoned loans for the lower risk-weighted capital afforded to MBS," analysts said. "This is one to watch for now, but not one to count on yet." Write to Jon Prior.

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