The reissuance of modified Ginnie Mae loans will boost transition rates, buyouts, and subsequently increase prepayment speeds on new, lower-coupon pools. Amherst Mortgage Insight analysts said avoiding Ginnie Mae interest-only mortgages is a good idea, as “conventionals are a better bet.” The firm’s MBS strategy group also advises investors to review Ginnie Mae spec pools “to ensure they don’t have a disproportionate amount of modified loans.” And it isn’t worth paying for “PAC protection in deals backed by lower coupon Ginnie Mae collateral.” Modified loans used to carry premium rates and were reissued into premium pools, according to the analysts. But new Federal Housing Administration guidelines now require a modified loan carry a rate within 50 basis points of the Freddie Mac survey. And modifications are climbing. In July, the FHA reported 19,002 loans were modified, up from 9,319 in January. The new guidelines, rolled out in October, “push these loans into lower coupon pools, giving those pools a worse credit mix than prior vintages,” Amherst analysts said. And they “expect these loans to be bought out soon after they redefault, which will boost speeds on 2010 4.5s.” The analysts said a growing share of new Ginnie Mae issues actually are modified loans, and some pools from 2010 are becoming delinquent faster than their 2009 counterparts because of the high recidivism rates on modified loans. As delinquencies rose throughout 2009, especially later in the year, loan buyouts from Ginnie Mae pools increased in tandem. This prompted many servicers, who own the buyout option on Ginnie loans, to exercise that option on most mortgages within a few months of becoming eligible, which is generally at 90-days delinquent, according to analysts. Ginnie Mae requires loans be bought out from the pool before modification. Once modified, the loan is considered current and is immediately eligible to be reissued into a new pool. With Fannie Mae and Freddie Mac pools, the GSE holds the buyout option and exercises it for every loan that becomes 120-days delinquent. Write to Jason Philyaw.