Fannie Mae, Freddie Mac, Ginnie Mae difference blurred

By Al Yoon - Analysis

NEW YORK (Reuters) - Ginnie Mae, the government-owned issuer of mortgage-backed securities, may see its main advantage in the $4.5 trillion market watered down.

The full taxpayer backing on Ginnie Mae bonds has been the key selling point for investors looking to shed risk, depending on the current temperature of the global credit crisis.

"Ginnie Maes," as investors call them, saw a sharp rally in February and March when the Federal Reserve had to prevent the collapse of Bear Stearns Cos., for instance.

But the latest storm in financial markets that surrounds Ginnie Mae competitors Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) is getting a different result. Ginnie Maes prices have slumped relative to other "agency" MBS since the U.S. Treasury and Federal Reserve announced measures to shore up confidence in the two private mortgage finance companies.

The shift may be coming at an inopportune time for Ginnie Mae, which is seeing its biggest business in years. Less demand could force yields higher, increasing costs for the hordes of Americans flocking to government programs.

The pricing advantage faded after Treasury Secretary Henry Paulson said he would ask Congress to extend more credit or take stock in Fannie Mae and Freddie Mac to backstop their financial strength. The degree of support surprised some analysts and was seen firming already strong links to the companies that have been losing market share to Ginnie Mae.

"The implicit government guarantee for the GSEs has just become a little more explicit," said Mahesh Swaminathan, a strategist at Credit Suisse in New York.

Traders responded by halving the price premium on Ginnie Mae MBS paying 5.5 percent interest to similar Fannie Mae MBS to 24/32 point in the three business days to Monday. The move began last week with speculation of a government takeover of Fannie Mae and Freddie Mac.