Government says troubled loan refinance lagging

By Patrick Rucker

WASHINGTON (Reuters) - Not enough U.S. homeowners facing foreclosure are receiving the full benefit of a federal mortgage refinance plan because investors are wary of the program, a top administrator said on Thursday.

That concern is found in the prices investors will pay for some mortgage securities that are packed with delinquent loans and backed by Ginnie Mae, said Michael Frenz, who is the agency's executive vice president.

"The pricing may not be as good," he told reporters at a government housing conference sponsored by the Mortgage Bankers Association. "Frankly, that does not benefit borrowers as much."

Ginnie Mae bundles loans backed by the Federal Housing Administration and the Veterans Administration into bonds. Last fall, the government agency for the first time began securitizing some loans for borrowers who had missed past payments as part of a federal program to help stem a wave of foreclosures.

Overall, loans guaranteed by the FHA totaled $54.8 billion in the six months through March, more than double what the agency helped originate for the same period a year earlier. The growth has come largely from borrowers with high debt or low credit ratings that have been shut out by Wall Street-funded programs frozen by delinquencies and the global credit crunch.

But Ginnie Mae has sold a modest $75 million in loans originated under the new program so far, Frenz said. The agency is on track to sell $200 billion of its plain vanilla mortgage bonds that include only on-time loans, he said.

"The volume has not been great, to date," he said of the specialty mortgage bonds that were created through a refinance program called FHA Secure.

One problem is that FHA Secure loans get segregated into their own mortgage securities that are not traded on the most liquid market known as "to be announced," Frenz said.

"Time will tell how these things will perform," he said, noting that investors should grow more comfortable as they understand more about the securities' characteristics over the next several months.

"One of the things we're doing is trying to improve disclosures. We're adding credit score and combined (loan-to-value) and some other data elements," he said.

Investors, including Michael Cheah of SunAmerica Asset Management, expect Ginnie Mae securities will continue to draw demand since they are the only mortgage bonds backed by the federal government. Prices on Ginnie Mae MBS are nearly a full point higher than bonds issued by Fannie Mae.

(Written by Patrick Rucker with Al Yoon in New York; Editing by Jan Paschal)