[Federal Register Volume 70, Number 177 (Wednesday, September 14, 2005)]
[Proposed Rules]
[Pages 54450-54451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-18182]



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Part II





Department of Housing and Urban Development





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24 CFR Part 320



Government National Mortgage Association: Excess Yield Securities; 
Proposed Rule

  Federal Register / Vol. 70, No. 177 / Wednesday, September 14, 2005 / 
Proposed Rules  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 320

[Docket No. FR-4958-P-01; HUD-2005-0018]
RIN 2503-AA18


Government National Mortgage Association: Excess Yield Securities

AGENCY: Government National Mortgage Association, HUD.

ACTION: Proposed rule.

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SUMMARY: The Government National Mortgage Association (Ginnie Mae) is 
developing a new program under which Ginnie Mae will guarantee 
securities backed by the excess servicing income relating to one or 
more mortgage pools or loan packages underlying previously issued 
Ginnie Mae mortgage-backed securities (Excess Yield Securities). This 
proposed rule would clarify the authority of Ginnie Mae to guarantee 
this new product and would provide Ginnie Mae the opportunity to 
consider public comment before implementing the program.

DATES: Comment Due Date: November 14, 2005.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Regulations Division, Office of General Counsel, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Room 10276, Washington, DC 20410-0500. Interested persons may also 
submit comments electronically through either:
     The Federal eRulemaking Portal at: http://www.regulations.gov; or
     The HUD electronic Web site at: http://www.epa.gov/feddocket. Follow the link entitled View Open HUD Dockets. Commenters 
should follow the instructions provided on that site to submit comments 
electronically.
    Facsimile (FAX) comments are not acceptable. In all cases, 
communications must refer to the docket number and title. All comments 
and communications submitted will be available, without charge, for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above Addresses. Due to security measures at the HUD Headquarters 
building, please schedule an appointment to review the public comments 
by calling the Regulations Division at (202) 708-3055 (this is not a 
toll-free number). Copies of the public comments are also available for 
inspection and downloading at http://www.epa.gov/feddocket.

FOR FURTHER INFORMATION CONTACT: Stephen L. Ledbetter, Director, 
Securities Policy and Research, Government National Mortgage 
Association, 550 Twelfth Street, SW., Third Floor, Washington, DC 
20024; telephone (202) 401-8970 (this is not a toll-free number). 
Individuals with speech or hearing impairments may access this number 
through TTY by calling the toll-free Federal Information Relay Service 
at (800) 877-8339.

SUPPLEMENTARY INFORMATION: 

Description of Program

    In furthering its statutory mission of expanding affordable housing 
in America by linking domestic and global capital markets to the 
Nation's housing markets, Ginnie Mae, operating under its current legal 
authority, is planning to implement an Excess Yield Securities program 
(Excess Yield Program) by providing its guaranty to interest-only 
securities backed by a portion of the servicing fee that is paid out of 
the monthly cash flows from government-insured or guaranteed mortgage 
loans backing previously issued Ginnie Mae guaranteed mortgage-backed 
securities (MBS). As currently contemplated, the cash flows backing the 
Excess Yield Securities would be that portion of a qualifying issuer's 
servicing cash flows with respect to the related mortgage pools or loan 
packages that is greater than the minimum amount of servicing required 
by Ginnie Mae. The Excess Yield Securities would be ``based on and 
backed by a trust or pool composed of mortgages which are insured under 
the National Housing Act'' and therefore eligible for guaranty as 
authorized by 12 U.S.C. 1721(g)(1)(ii), just as their related Ginnie 
Mae-guaranteed MBS are.
    Ginnie Mae expects that the servicing cash flows would be pooled 
and would back securities guaranteed by Ginnie Mae and upon which 
Ginnie Mae would charge a guaranty fee pursuant to 12 U.S.C. 1721(g)(1) 
and 24 CFR 320 of the implementing regulations. The guarantee fee would 
be no more than six basis points, as required by 12 U.S.C. 
1721(g)(3)(A). Although a guaranty fee has been assessed against the 
related MBS previously guaranteed, the servicing cash flows that serve 
as the collateral for these new securities have not backed securities 
upon which a fee has been assessed.
    The purpose of this rule is to affirm Ginnie Mae's authority to 
guarantee Excess Yield Securities, to charge guaranty fees for such 
guarantee, and to revise Ginnie Mae's authorizing regulations to 
clarify their application to the Excess Yield Program. Because Ginnie 
Mae has not previously guaranteed servicing cash flows, and charged a 
fee for such guarantee, Ginnie Mae is providing an opportunity for 
prior public notice and comment before program implementation.

Purpose of Excess Yield Program

    The Excess Yield Program will allow qualifying Ginnie Mae issuers 
to reduce the amount of mortgage servicing rights on their balance 
sheets, which will in turn reduce the amount of capital they are 
required to hold against that asset. It will also reduce their need to 
use costly hedging tools to hedge against fluctuations in the value of 
their mortgage servicing rights. By increasing the liquidity of 
mortgage servicing rights for Ginnie Mae issuers, the Excess Yield 
Program should lower the costs of, and encourage the origination of, 
government-insured and guaranteed loans that back Ginnie Mae MBS. This 
will directly benefit low- and moderate-income borrowers and further 
Ginnie Mae's mission.

Authority To Charge Commitment and Guaranty Fees

    The structure of the transaction would generate new fee revenue to 
Ginnie Mae from the payment of commitment fees and guaranty fees, 
collected at the issuance of the Excess Yield Securities. A guaranty 
fee would be charged pursuant to 12 U.S.C. 1721(g)(1) and would be 
limited to six basis points as restricted by 12 U.S.C 1721(g)(3)(A). 
Ginnie Mae believes that the Excess Yield Securities will increase the 
availability and decrease the cost of funds for homeowners by reducing 
costs to lenders.

Program Administration

    The program would provide a variety of safeguards to minimize the 
risk to the Federal government, as well as to investors. Additional 
risk to taxpayers would be minimal because the excess yield securities 
guaranteed by Ginnie Mae would be backed by the excess servicing cash 
flows, which are part of the interest payments on the underlying 
federally insured or guaranteed mortgages that are not already passed 
through as payments to investors in existing Ginnie Mae MBS. In 
addition, participants in Ginnie Mae's Excess Yield Program would be 
carefully selected through a review process that includes strict 
eligibility requirements based upon issuer competence and financial 
condition. The operational risks associated with the new product would 
be mitigated by ongoing monitoring procedures. Investors eligible to 
purchase this product would be limited, by virtue of the minimum

[[Page 54451]]

investment amount, to those institutions that meet the requirements to 
be classified as accredited institutional investors, thus protecting 
small investors from the increased risks associated with interest-only 
securities.
    Ginnie Mae issuers will be responsible for making timely payments 
on the Excess Yield Securities to investors who own the excess-yield 
securities, regardless of whether such payments are received from the 
mortgage borrowers. To the extent that a Ginnie Mae issuer defaults on 
its payment obligations on the Excess Yield Securities, Ginnie Mae 
would provide timely payment to the investors. Issuers of Excess Yield 
Securities would be subject to extinguishment of their rights to 
participate in Ginnie Mae's programs under certain circumstances, 
including a failure to pay investors. Ginnie Mae anticipates that 
program participants shall pay transaction fees, including trustee, 
accountant, legal, and other fees. Excess Yield Securities will help to 
modernize Ginnie Mae's program.
    To affirm and clarify Ginnie Mae's authority to take such action, 
this rule proposes to add a new Sec.  320.8 to HUD's regulations 
governing the guaranty of MBS to include an explicit reference to the 
cash flows from eligible mortgages as backing a guaranteed security. 
New Sec.  320.8 would define Excess Yield Securities as securities 
backed by the excess servicing income relating to mortgages underlying 
previously issued Ginnie Mae MBS. The proposed new regulatory section 
would specify that Ginnie Mae will guarantee the timely payment of 
interest as provided by the terms of the security.

Findings and Certifications

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for federal agencies to 
assess the effects of their regulatory actions on state, local, and 
tribal governments and the private sector. This proposed rule does not 
impose any Federal mandate on any State, local, or tribal government or 
the private sector within the meaning of UMRA.

Environmental Impact

    This proposed rule does not direct, provide for assistance or loan 
and mortgage insurance for, or otherwise govern or regulate, real 
property acquisition, disposition, leasing, rehabilitation, alteration, 
demolition, or new construction, or establish, revise, or provide for 
standards for construction or construction materials, manufactured 
housing, or occupancy. Accordingly, under 24 CFR 50.19(c)(1), this 
proposed rule is categorically excluded from environmental review under 
the National Environmental Policy Act of 1969. (42 U.S.C. 4321)

Regulatory Flexibility Act

    The Secretary has reviewed this rule before publication and, by 
approving it, certifies, in accordance with the Regulatory Flexibility 
Act (5 U.S.C. 605(b)), that this rule would not have a significant 
economic impact on a substantial number of small entities. The proposed 
rule affirms and clarifies the authority of Ginnie Mae to guarantee a 
type of security it had not previously guaranteed and, as such, has no 
impact on entities in which the size of entities is a relevant 
consideration. Notwithstanding HUD's determination that this rule will 
not have a significant economic impact on a substantial number of small 
entities, HUD specifically invites comments regarding less burdensome 
alternatives to this rule that will meet HUD's program 
responsibilities.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from promulgating a 
regulation that has federalism implications and either imposes 
substantial direct compliance costs on state and local governments and 
is not required by statute, or preempts state law, unless the relevant 
requirements of section 6 of the executive order are met. This rule 
does not have federalism implications and does not impose substantial 
direct compliance costs on State and local governments or preempt state 
law within the meaning of the executive order.

Executive Order 12866, Regulatory Planning and Review

    OMB reviewed this rule under Executive Order 12866 (entitled 
``Regulatory Planning and Review''). OMB determined that this rule is a 
``significant regulatory action,'' as defined in section 3(f) of the 
executive order (although not economically significant, as provided in 
section 3(f)(1) of the executive order). Any changes made to the rule 
subsequent to its submission to OMB are identified in the docket file, 
which is available for public inspection in the Regulations Division, 
Office of the General Counsel, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Room 10276, Washington, DC 20410-
0500.

List of Subjects in 24 CFR Part 320

    Mortgages, Securities.

    Accordingly, HUD proposes to amend 24 CFR part 320 to read as 
follows:

PART 320--GUARANTY OF MORTGAGE-BACKED SECURITIES

    1. The authority citation for 24 CFR part 320 continues to read as 
follows:

    Authority: 12 U.S.C. 1721(g) and 1723a(a); and 42 U.S.C. 
3535(d).
    2. Add Sec.  320.8 to read as follows:


Sec.  320.8  Excess Yield Securities.

    (a) Definition. Excess Yield Securities are securities backed by 
the excess servicing income relating to mortgages underlying previously 
issued Ginnie Mae mortgage-backed securities.
    (b) GNMA guaranty. The Association guarantees the timely payment of 
interest as provided by the terms of the security.

    Dated: August 16, 2005.
Michael J. Frenz,
Executive Vice President.
[FR Doc. 05-18182 Filed 9-13-05; 8:45 am]
BILLING CODE 4210-66-P