August 30, 2007 / 7:14 PM / 12 years ago

Ginnie Mae removes loan limit on VA mortgages

NEW YORK, Aug 30 (Reuters) - Ginnie Mae, a government-owned corporation, said on Thursday it is eliminating the restriction on the size of mortgage loans guaranteed by the Department of Veterans Affairs (VA) that can be pooled in mortgage-backed securities it guarantees.

In a press release, Ginnie Mae said effective September 1, it will not longer limit the size of VA loans to the maximum original loan amount for conforming loans, which is currently at $417,000.

“We expect this change will expand the availability of low-cost financing and increase homeownership opportunities for America’s veterans, particularly in high-cost areas, by encouraging lenders to make more VA loans,” Michael J. Frenz, Executive Vice President of Ginnie Mae, said in the release.

With limited availability of credit for so called “jumbo” loans of more than $417,000, currently in the private market, Ginnie Mae’s move should draw a surprisingly large amount of interest from veterans, Alec Crawford, head of MBS strategy at RBS Greenwich Capital in Greenwich, Connecticut, said in commentary published Thursday.

Approximately 30 percent of the loans that back Ginnie Mae mortgage-backed securities are guaranteed by the VA and this percentage could increase, he said.

Ginnie Mae mortgage-backed securities have cheapened in price since the news emerged due to expectations of increased supply and changing characteristics on loans, he said.

Ginnie Mae said it will continue to require that the amount of cash down payment, plus the amount of the VA guaranty, equal at least 25 percent of the value of the home.

Ginnie Mae MBS comprise a small portion of the roughly $4.25 trillion “agency” MBS market, which stood at about $413 billion at the end of the first quarter 2007. At roughly $7 trillion in size, which includes the subprime sector, the mortgage bond market is the world’s largest, dominated by Fannie Mae FNM.Nand Freddie Mac FRE.N.

Fannie Mae and Freddie Mac have “conforming” loan limits of $417,000.

Ginnie Mae mortgage-backed securities are the only mortgage bonds that carry the full faith and credit guarantee of the U.S. government.

The primary mortgage market, where loans get originated, has changed significantly over the past few months. A sharp rise in defaults in the subprime mortgage market, which caters to borrowers with poor credit histories, has caused lenders to tighten requirements, making it difficult for those with weak credit to get a home loan.

Some market observers say even borrowers with an unblemished credit history are having a more difficult time getting a loan.

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