Last week, it came to the attention of market participants that some of the Ginnie Mae Platinum pools that were recently created may not meet to-be-announced (TBA) deliverable guidelines but were still delivered into TBA nonetheless. Today, the Securities Industry and Financial Markets Association (SIFMA) addressed the issue in a conference call with members of the trade group. SIFMA is charged with aligning the interests of all players in this market. The news is welcome considering the rumor circulating the incidents, which were confirmed to HousingWire yesterday. A number of traders that work with these securities say a loophole allowed dealers to trade Platinums on the TBA market when they were not eligible for TBA delivery. Ginnie is said to be attempting to put in a series of check and balances, perhaps by coding all Platinums with non delivery pools with a 79 prefix instead of 78, as one trader suggested. Other sources involved in the Platinum market, but not in trading of the bonds, declined to comment “even off the record,” as one banker put it as “this is Ginnie’s issue.” SIFMA acknowledges that the bonds were traded in violation of its standard market practices outlined by the Good Delivery Guidelines, which serve to promote liquid and efficient secondary markets for mortgage-backed securities and ultimately enhance the access of homebuyers to affordable credit. According to an e-mail of clarification from SIFMA spokesperson Katrina Cavalli: “The Good Delivery Guidelines for Ginnie Mae Platinum securities provide that ’30-year Ginnie Mae Platinum securities are good delivery since the final maturities of the individual Ginnie Mae securities underlying a 30-year Ginnie Mae Platinum are each at least 28 years (336 months) from the date of issuance.’ However, Platinums have been created where underlying pools had final maturities of less than 28 years from their date of issuance, contrary to the Good Delivery Guidelines. These Platinums have been traded for a number of years as if they were Good Delivery.” After speaking today with its buyside and sellside membership, SIFMA determined the following clarifications:
- Ginnie Mae Platinum single family pools issued on or before July 1, 2010 that contain collateral with final maturities at issuance of less than 28 years, that otherwise conform with applicable Good Delivery Guidelines, shall be considered Good Delivery for TBA trades for July 2010 settlement and forward.
- For open obligations, such as pre-July 2010 contractual settlement TBA and pool fails, these pools should also be accepted as Good Delivery, subject to the agreement of the counterparties to the trade.
- The pools referenced above may be included in a future Ginnie Mae Platinum security that is Good Delivery for settlement of a TBA trade. This assumes that the new Platinum security otherwise meets all other Good Delivery criteria.
- Market participants recommend that previous trades that have been settled involving these pools should not be reopened and should remain settled.
- The existing Good Delivery Guideline will stand, subject to the exceptions for the pools referenced above.
Write to Jacob Gaffney. Additional reporting by Diana Golobay.