8/19/2019 Review of Ginnie Mae Jumbo Collateral
1/12
This commentary has been prepared by Markets Quantitative Analysis ("MQA"), which is part of Citigroup GlobalMarkets' sales and trading operations.
1
Review of Ginnie Mae Jumbo Collateral
Mikhail Teytel
212 816 8465
Sandra Vedadi
212 816 0949
David Cohen
212 816 0503
Ginnie Mae jumbo or “M JM” issuance has risen at the end of
2010, reaching $600M per month.
Prepayments
of
Ginnie
Mae jumbo
pools
are
much
faster
than
prepayments of the conforming Ginnies, and over the past two
years frequently stayed in the 50%‐70% CPR range. Refinancings
are the greatest cause of fast speeds, although defaults may
contribute as well.
Although jumbo Ginnie borrowers are typically more affluent than
conforming Ginnie borrowers, Ginnie jumbo default experience is
comparable to that of conforming Ginnies. Variations in credit
between Ginnie jumbo pools are frequently more important for
defaults than higher loan size.
A
reduction
in
the
FHA
conforming
limit
may
lower
Ginnie
jumbo
speeds by 20%‐30%. This together with the recently announced
increase in the annual MIP may significantly improve Ginnie Mae
jumbo convexity.
After the burst of the housing bubble in 2008, the supply of credit to private label jumbo loans dried up.
To address this problem, the government increased FHA loan limits. In order to securitize high‐balance
FHA loans, Ginnie Mae expanded the Ginnie Mae II program to introduce a new non‐TBA‐eligible pool
type “M JM” ‐ the focus of this article. Throughout this article, we will refer to the Ginnie II “M JM”
collateral as Ginnie Mae jumbos, and will review legislation governing their issuance as well as their
production volumes, collateral characteristics, and delinquency and prepayment patterns. We will also
compare Ginnie jumbos to conventional agency jumbos and traditional conforming Ginnie II collateral.
Finally,
we
will
discuss
the
impact
of
the
recent
Ginnie
Mae
underwriting
changes
and
of
a
possible
reduction in the FHA loan limit on Ginnie jumbo speeds. For our analysis, we will consider 30‐year
collateral, which constitutes the bulk of the issuance.
Legislation Governing FHA Jumbo Production
Composition of “M JM” Ginnie pools is affected by the loan limits of FHA, VA, and other government
loan guaranty programs, as well as Ginnie Mae TBA eligibility rules. The TBA eligibility rules are
important because jumbo collateral generally trades at a discount to TBAs and originators would,
whenever permitted, place cheaper jumbo loans into higher priced TBA–eligible pools. Only jumbo loans
that could not, for one reason or another, be placed into TBA‐eligible pools would end up in MJM pools.
Changes
in
FHA
loan
limit
Traditionally, the FHA loan limit has been set at about 87% of the conforming limit. However, a series of
enactments changed this rule (see Figure 1). The starting point was the Economic Stimulus Act of 2008
(ESA) which temporarily increased the FHA loan limit depending on the Metropolitan Statistical Area
(MSA). Subsequently, the Housing and Economic Recovery Act of 2008 (HERA) established permanent
MSA‐specific loan limits which were lower than the ESA limits. However, in the beginning of 2009, these
limits were restored to their ESA 2008 levels by the American Recovery and Reinvestment Act (ARRA).
February 24, 2011 Market Quantitative Analysis
8/19/2019 Review of Ginnie Mae Jumbo Collateral
2/12
Review of Ginnie Mae Jumbo Collateral February 24, 2011
This commentary has been prepared by Markets Quantitative Analysis ("MQA"),
which is part of Citigroup Global Markets' sales and trading operations.
2
Figure 1. Impact of Enactments on FHA loan limits si nce 2008
Economic Stimulus Act (ESA) of2008
Housing and Economic Recovery Act (HERA) o f 2008
Amer ican Recovery andReinvestment Act (ARRA) of2009
EnactmentDate
February 13, 2008 July 30, 2008 February 17, 2009
FHAmaximumloan size
125% of the median house price inthe geographic area, but floored at$271,050 and capped at $729,7501
115% of the median house price inthat geographic area, but floored at$271,050 and capped at $625,500
ESA limits
FHA LoanOriginationDate
On or Before December 31, 2008 butloan endorsed after March 6,2008
On or After January 1, 2009January 1, 2009 throughDecember 31, 2009 (laterextended to September 30, 2011)
Source: HUD (Morgage Letter 08-06, 08-36, 09-07, 09-50, 10-40) and Citi.
Changes in VA guaranty
Unlike the FHA, the VA does not guarantee the entire principal of the loan. Instead, the VA guarantees
only a fraction of the loan up to a maximum amount called the VA entitlement. Traditionally, the
entitlement was county‐specific, but generally limited to 25% of the conforming limit, which allowed
lenders to originate conforming VA loans with no down payment. Theoretically, there was never a limit
to the size of a VA loan. A non‐conforming loan would require a down payment that together with the
VA entitlement would constitute 25% of the home value. For example, in the first half of 2008, the
maximum guaranty offered by VA was limited to 25% of the conforming loan limit of $417K, or about
$104K. If a veteran wanted to buy a $500,000 home, a lender would typically require about $21,000 in
down payment.
The dollar amount of VA entitlements has increased in step with increases in the conforming limit.
Moreover in some high‐cost counties, the VA entitlement was raised above 25% of the conforming limit.
Changes
in
Ginnie
Mae
TBA
pooling
Requirements
Traditionally, Ginnie Mae restricted the size of loans allowed to be placed into a TBA‐eligible pool, with
the cutoff at about 87% of the conforming limit. However, in September 2007, the limit on the size of VA
loans was lifted, and VA loans of any size were allowed into TBA‐eligible pools. After the limit on FHA
loan size was raised in 2009, Ginnie Mae allowed loans exceeding a certain threshold, called the high‐
balance loan limit, to be placed into TBA‐eligible pools, albeit subject to the 10% de minimus rule. At the
same time, the VA exception was terminated, placing VA loans under the same 10% de minimus rule.
Recent changes to the Ginnie Mae TBA pooling requirements are delineated in Figure 2.
1 Higher limits apply to 2‐4 unit properties or properties located in AK, GU, HI and VI.
8/19/2019 Review of Ginnie Mae Jumbo Collateral
3/12
Review of Ginnie Mae Jumbo Collateral February 24, 2011
This commentary has been prepared by Markets Quantitative Analysis ("MQA"),
which is part of Citigroup Global Markets' sales and trading operations.
3
Figure 2. GNMA TBA Eligibility fo r 1-Unit Property
September 1 2007 Apr il 1, 2008 January 1, 2009
Loan Origination Date Before October 1,2008 On or After October 1, 2008
High-Balance Loan Limitfor 1-Unit Properties2
$362,790 $417,000
TBA Eligibility RuleHigh Balance Loans are not allowed (see VA exception
below)
High-Balance loans may be pooled intoTBA-eligible pools subject to the 10%
de minimus rule
Exception for VA loansVA loans are allowed in TBA-eligible pools without any
loan size restriction.
High-Balance VA loans may be pooledinto TBA-eligible pools subject to the
10% de minimus ruleSource: Ginnie Mae (APM 08-05, 08-06, 08-25, 09-07) and Citi.
Issuance
Issuance of Ginnie Mae jumbo collateral is shown Figure 3. After the ESA Act of 2008, jumbo issuance
started
to
rise,
reaching
almost
$2
billion
per
month
by
the
summer
of
2008.
At
that
point,
the
share
of
jumbo issuance reached 18% of the total Ginnie II 30 year issuance. However, since the beginning of
2009, the issuance of “M JM” dropped for a variety of reasons, including the reduction of the FHA loan
limit by HERA, ability, albeit limited, to securitize jumbo loans into TBA‐eligible pools, and the
introduction of competing conventional products (agency jumbos). As seen in Figure 4, issuance of
Fannie Mae Jumbo pools (designated by the prefix CK) increased relative to issuance of Ginnie jumbos.
At the end of 2010, lower mortgage rates drove “M JM” monthly issuance to above $600 MM. The bulk
of recent jumbo issuance has been in 4s and 4.5s.
2 Higher limits apply to 2‐4 unit properties or properties located in AK, GU, HI and VI.
8/19/2019 Review of Ginnie Mae Jumbo Collateral
4/12
Review of Ginnie Mae Jumbo Collateral February 24, 2011
This commentary has been prepared by Markets Quantitative Analysis ("MQA"),
which is part of Citigroup Global Markets' sales and trading operations.
4
Figure 3.GN II Jumbo Issuance and th e Ratio of GN II JumboIssuance to GN II Confor ming 30-Yr Issuance
Source: CPRCDR and Citi.
Figure 4. Fannie Mae and Ginni e Mae Jumbos Iss uance
Source: CPRCDR and Citi.
Collateral Characteristics
Figure 5 and Figure 6 compare collateral characteristics of jumbo and conforming Ginnie IIs. As expected
jumbo collateral pools have larger loan sizes (2.5 times bigger) than traditional Ginnie IIs (see Figure 5).
Jumbo 2008 collateral has a somewhat lower loan size than 2009 and 2010, which may be due to the
change in the loan size limit.
When compared to GN II 30 Yrs, jumbos have somewhat lower original LTVs and higher FICO scores,
suggesting somewhat better credit — perhaps the result of jumbo borrowers being more affluent. The
data shows that 2008 jumbo loans have somewhat poorer credit scores than 2009 and 2010 loans.
However, the FICO sample size is rather small for pools originated in 2008.
Figure 6 shows that jumbo pools, especially those originated in 2009 and 2010, when interest rates were
low, have a significantly larger fraction of refinance loans compared to GN II, which is a consequence of
their higher refinancing incentive.
On average, jumbo pools have a higher share of FHA loans than VA loans, which is consistent with the
composition of conforming Ginnies. However, for lower coupons, the FHA share is lower for jumbos
than for conforming Ginnies, and for higher coupons — it’s higher. Another interesting observation is
that jumbo collateral originated in 2008 has very few VA loans. Recall that in 2008, VA loans could be
placed
into
conforming
TBA
pools
without
loan
size
restrictions.
8/19/2019 Review of Ginnie Mae Jumbo Collateral
5/12
Review of Ginnie Mae Jumbo Collateral February 24, 2011
This commentary has been prepared by Markets Quantitative Analysis ("MQA"),
which is part of Citigroup Global Markets' sales and trading operations.
5
Figure 5. Current Balance, Current L oan Size, Credit Scor e and OLTV of Ginnie Ju mbos and Ginnie II 30 year Collateral, January 2011
CBal ($MM) Cloan size (K) FICO OLTV
Coupon Year Jumbos GN II Jumbos GN II Jumbos GN II Jumbos GN II
3.5 2010 24 1,260 503 195 757 720 92 9
4.0 2009 103 2,406 494 190 689 665 90 9
4.0 2010 1,727 35,161 541 198 740 719 92 9
4.5 2009 424 48,338 483 185 664 681 94 9
4.5 2010 1,680 77,829 528 185 731 710 93 9
5.0 2008 206 3,661 428 167 673 661 93 9
5.0 2009 614 64,976 493 166 714 647 93 9
5.0 2010 774 57,186 516 162 723 690 93 9
5.5 2008 745 17,449 431 152 632 651 93 9
5.5 2009 271 7,107 480 137 694 629 91 9
5.5 2010 21 2,245 459 118 698 644 92 9
6.0 2008 332 8,258 434 130 603 635 92 9
6.0 2009 35 846 407 111 608 602 93 9
6.5 2008 191 4,475 424 114 615 612 92 9
7.0 2008 34 385 429 94 635 589 89 9
Source: Citi, CPRCDR
Figure 6. Loan Purpos e and Loan Type, January 2011
CBal ($ MM) % REFI % Purchase % FHA % VA
Coupon Year Jumbos GN II Jumbos GN II Jumbos GN II Jumbos GN II Jumbos GN II
3.5 2010 24 1,260 51.7 17.6 31.7 53.1 44.0 61.5 56.1 34
4.0 2009 103 2,406 52.4 21.0 29.6 43.5 58.0 70.7 42.0 26
4.0 2010 1,727 35,161 53.7 36.6 31.1 46.4 78.3 70.0 21.5 26
4.5 2009 424 48,338 49.9 37.0 35.3 45.2 60.5 74.5 38.6 21
4.5 2010 1,680 77,829 50.1 29.7 39.5 54.8 70.5 76.2 29.5 19
5.0
2008
206
3,661
20.0 21.6 36.0 30.5 99.5
69.7 0.5 275.0 2009 614 64,976 42.7 31.4 46.4 51.6 81.7 81.5 17.3 13
5.0 2010 774 57,186 37.7 28.8 53.3 58.1 74.6 83.6 25.2 12
5.5 2008 745 17,449 27.4 30.1 50.8 40.2 99.2 80.7 0.6 15
5.5 2009 271 7,107 45.5 28.6 43.8 56.8 91.1 85.8 8.0 11
5.5 2010 21 2,245 53.1 36.5 42.3 49.5 88.0 88.4 12.0 10
6.0 2008 332 8,258 31.7 30.5 53.3 44.6 99.9 84.6 0.2 9
6.0 2009 35 846 38.7 22.4 48.5 55.0 90.8 88.9 9.2 7
6.5 2008 191 4,475 43.9 33.6 48.2 48.1 100.0 87.6 0.0 6
7.0 2008 34 385 53.5 36.1 39.9 50.1 100.0 95.2 0.0 3Source: Citi, CPRCDR
Geographical Distribution
Figure 7 shows the geographic distribution for jumbo collateral. Since FHA and VA loan limits are not
uniform across the country, the geographic distribution of Ginnie jumbos is different from that of
conforming Ginnies. Jumbo collateral has a larger share in more expensive states, with California and
New York accounting for more than 50 % of the jumbo issuance. While differences in geographic
composition most likely have an effect on jumbo prepayments, jumbo speeds are typically faster than
those of conforming Ginnies for all states, suggesting that geography is not the most important driver of
fast jumbo speeds.
8/19/2019 Review of Ginnie Mae Jumbo Collateral
6/12
Review of Ginnie Mae Jumbo Collateral February 24, 2011
This commentary has been prepared by Markets Quantitative Analysis ("MQA"),
which is part of Citigroup Global Markets' sales and trading operations.
6
Figure 7. Geographi cal Distribu tion o f Ginnie Mae Jumbo Coll ateral as of December 2010
% Distribution CPR 1yr for 2008 6s
State Jumbo GN II Jumbo GN II
CA 37.1% 10.2% 38.3 21.9
VA 14.0% 4.6% 25.5 16
NY 14.0% 3.4% 17.2 9.5
MD
9.4%
3.0% 29.5
21.3NJ 6.3% 2.8% 32.3 17.1
WA 3.7% 3.2% 39.6 19.5
MA 2.4% 1.5% 39.4 26.1
DC 1.6% 0.3% 18.1 19.8
CT 1.4% 1.0% 29.7 14.8
FL 1.4% 5.2% 17.6 9.6
PR 1.2% 0.0% 4.6 0
HI 1.2% 0.4% 36.8 19
CO 1.0% 3.4% 46.4 18.6
US 100.0% 100.0% 32.9 15.8Source: Citi, CPRCDR
Servicers
The servicer distribution for jumbos changed somewhat between 2008 and 2009 (see Figure 8). In 2008
there was a large concentration in two servicers: Chase and Wells Fargo (about 45%), but in 2009 and
2010 the share of these two servicers declined as they shifted some of their jumbo production to
conventionals and TBA‐eligible Ginnies.
Figure 8. Servicer Dist ribut ion of Ginnie Mae and Fannie Mae Jumbo Collateral (Fannie as of January 2011, Ginnie as of December2010)
% per Servicer in 2008 % per Servicer in 2009 % per Servicer in 2010
GN
Jumbo
GN II
30
FN
Jumbo
GN
Jumbo
GN II
30
FN
Jumbo
GN
Jumbo
GN II
30
FN
Jumb
CHASE
24.2
15.6
12.5
BOA‐CW 16.9 31.3 17.0 UNRPT
20.9 13.5 5.1
BOA‐CW 21.3 24.6 17.1 CITI 13.1 2.5 4.9 BOA‐CW 19.8 23.7 19.6
WFHM 20.7 19.0 21.9 NAVY 13.1 0.2 ‐ CHASE 10.9 7.8 10.7
CITI 10.0 6.5 12.6 CHASE 6.6 9.0 11.5 WFHM 6.7 30.1 30.4
GMAC 3.8 4.1 2.7 PHH 5.9 2.4 1.4 GMAC 6.5 3.9 6.0
TBW 2.7 5.9 ‐ GMAC 5.7 5.9 4.3 NAVY 6.1 0.0 0.2
FLAG 2.3 3.9 0.8 FLAG 5.4 2.0 0.5 METLIFE 5.7 1.2 2.0
METLIFE 1.7 0.5 2.9 METLIFE 5.3 2.6 10.6 CITI 4.2 1.3 6.0
SUN 1.6 2.6 3.3 WFHM 4.7 25.8 32.6 PHH 3.1 3.1 2.3
PHH 1.3 2.0 0.8 FRDOM 3.2 0.6 ‐ FLAG 2.8 1.1 1.2
BBT 1.2 1.6 ‐ BBT 2.5 0.9 2.4 FRDOM 1.9 0.6 ‐
USB 1.1 1.7 ‐ MTB 2.2 0.1 ‐ SUN 1.6 1.1 1.4
FT
1.0
0.4 ‐
HSB 1.2 ‐ ‐
MTB
0.7 0.0 ‐
PNC 0.9 2.7 0.2 DORAL 1.0 ‐ ‐ QUICK 0.6 0.0 0.7
MTB 0.7 0.0 ‐ HSBC 0.7 0.0 3.4 HSBC 0.6 ‐ 1.1
HSBC 0.5 0.2 0.9 PNC 0.7 1.5 0.0 BBT 0.5 0.9 0.0
Source: Citi, CPRCDR
8/19/2019 Review of Ginnie Mae Jumbo Collateral
7/12
Review of Ginnie Mae Jumbo Collateral February 24, 2011
This commentary has been prepared by Markets Quantitative Analysis ("MQA"),
which is part of Citigroup Global Markets' sales and trading operations.
7
Delinquencies
Figure 9 compares jumbo and conforming Ginnie 60‐day delinquencies for 6s of 2008 and 5s of 2009.3 6s
of 2008 had lower delinquencies than conforming Ginnies until the middle of 2009, after which the
trend reversed. For 5s of 2009, jumbo and conventional delinquencies were similar, perhaps with
somewhat lower level for jumbos. A similar pattern is observed for other cohorts: for 2008 production,
jumbo defaults
are
higher
than
conforming
Ginnies,
and
for
2009
and
2010
collateral,
default
rates
are
similar, at least so far.
Figure 9. 60-Day Delinquency for 2008 6s (left) and 2009 5s (righ t)
Source: Citi, CPRCDR
Ginnie Mae servicers have an option to repurchase 90‐day delinquent loans at par out of GNMA pools,
and buyouts can contribute significantly to overall speeds. Figure 10 compares buyouts, measured in
constant buyout rate (CBR%), for jumbo and conforming Ginnie collateral. For 6s of 2008, jumbo
buyouts are considerably faster because of higher delinquencies. Are jumbo Ginnies bought out more
efficiently by servicers than conforming Ginnies? Figure 11 shows ratios of buyouts to 90‐day
delinquencies. While
buyout
efficiency
is
similar
for
2008
cohorts,
it
is
lower
for
2009
collateral.
Figure 10. 1-Month CBR for 2008 6s (left) and 2009 5s (right )
0
5
10
15
20
25
30
35
40
45
50
Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10
1 -
M o n t h C B R ( % )
GN II 30 Yr
Jumbo
0
1
2
3
4
5
6
7
8
9
10
Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10
1 - M o n t h C B R ( % )
GN II 30 Y r
Jumbo
Source: Citi, CPRCDR
3 We have chosen the 60‐day delinquencies because they are indicative of collateral performance, while 90‐day
delinquencies are affected by servicer buyouts.
8/19/2019 Review of Ginnie Mae Jumbo Collateral
8/12
Review of Ginnie Mae Jumbo Collateral February 24, 2011
This commentary has been prepared by Markets Quantitative Analysis ("MQA"),
which is part of Citigroup Global Markets' sales and trading operations.
8
Figure 11. Ratio of 1-Month CBR to % 90D for 2008 6s (left) and 2009 5s(right )
Source: Citi, CPRCDR
Overall
we
believe
that
Ginnie
jumbo
default
experience
is
generally
in
line
with
that
of
conforming
Ginnies. All else being equal, higher loan size most likely leads to higher defaults. However, all else is
rarely equal. The credit quality of jumbo pools, including FICO and current LTV, vary from vintage to
vintage and frequently from pool to pool, and variations in credit quality are generally more important
determinants of defaults than loan size. Each pool should be analyzed on its own merits.
Prepayments
Over the past two years, Ginnie jumbo prepayments were very fast, frequently in the 50%‐70% CPR
range (see Figure 12).
Figure 12. 1-Month CPR for 2008 6s (left) and 2009 5s (right)
Source: Citi, CPRCDR
Fast in the money speeds for jumbos are expected and are likely to continue in the future. Ginnie Maes
are no exception. Fast jumbo speeds are caused by very large dollar incentives – a direct consequence of
high loan size. For Ginnie loans, which have a popular streamlined refinancing program, refinancing an in
the money jumbo loan may be very attractive. Many Ginnie borrowers choose a no‐point no‐cost
refinancing, where all refinancing costs are converted into a higher mortgage rate. When a jumbo Ginnie
borrower is sufficiently in the money to lower their rate through a no‐point no‐cost refi, prepayments
8/19/2019 Review of Ginnie Mae Jumbo Collateral
9/12
Review of Ginnie Mae Jumbo Collateral February 24, 2011
This commentary has been prepared by Markets Quantitative Analysis ("MQA"),
which is part of Citigroup Global Markets' sales and trading operations.
9
should be fast, and they were. Recent tightening of the FHA’s streamlined refinancing rules may have
moderated speeds slightly (see the January 2010 drop in speeds of 6s of 2008 in Figure 12), but speeds
remained very fast.
Comparison to Conventional Jumbos
In Figure
13,
we
compare
the
prepayment
S
‐curves
of
conventional
agency
jumbos,
Ginnie
Mae
jumbos
and conforming Ginnie IIs. The S‐curves for conventional and Ginnie Mae jumbos are steeper than for
conforming Ginnies – a consequence of jumbo’s higher sensitivity to mortgage rates. Amongst the
jumbos, the conventional S‐curve is steeper than the one for Ginnies – most likely resulting from higher
loan sizes and better credit for conventional jumbo borrowers.
Figure 13. Convention al Agency Jumb o, Ginnie Mae Jumbo and Con formin g Ginnie II Prepayment S-Curves for 2008 and 2009 Origination, Apr2008 to January 2011
2008 Origination Year
0
10
20
30
40
50
60
70
-100 0 100 200 Incentive (bp)
1 m o n t h C P R ( %
GN Jumbo
GN II
FN Jumbo
2009 Origination Year
0
10
20
30
40
50
60
70
-100 0 100 200 Incentive(bp)
1 m o n t h C P R ( %
GN Jumbo
GN II
FN Jumbo
Source: CPRCDR
In Figure
14,
we
take
a
look
at
the
collateral
characteristics
of
Ginnie
Mae
and
Fannie
Mae
jumbos
as
of
January 2011. The loan size is higher for conventional jumbos by $50K‐$100K. Conventional jumbos also
have better credit than Ginnie jumbos: current LTVs are 20%‐30% lower and FICOs are often 50‐100
points higher.
8/19/2019 Review of Ginnie Mae Jumbo Collateral
10/12
Review of Ginnie Mae Jumbo Collateral February 24, 2011
This commentary has been prepared by Markets Quantitative Analysis ("MQA"),
which is part of Citigroup Global Markets' sales and trading operations.
10
Figure 14 Current Balance, Current Loan Size, Credit Score* and OLTV of Ginnie Jumbos and Fannie Jumbo s Collateral
CBal ($ MM) Cloan size (k) CLTV FICO 1 Month CPR (%)
Coupon YearGN
JumboFN
JumboGN
JumboFN
JumboGN
JumboFN
JumboGN
JumboFN
JumboGN
JumboFN
Jumbo
3.5 2010 24 255 503 577 92 67 757 775 0 4.2
4 2009 103 384 494 527 91 60 689 772 0.1 13.5
4 2010 1,727
12,798
541
581
92
66
740
772
1.5
5.7
4.5 2009 424 6,384 483 551 94 64 664 767 14.7 30.4
4.5 2010 1,680 13,918 528 578 92 66 731 768 4.5 22.1
5 2008 206 449 428 578 101 73 673 761 36.8 61.7
5 2009 658 4,296 492 549 93 70 714 761 27.4 38.5
5 2010 774 4,311 516 571 91 70 723 759 24.2 35.7
5.5 2008 837 1,142 431 550 101 77 636 757 39.1 58.2
5.5 2009 271 241 480 545 93 73 694 747 32.4 34.8
5.5 2010 21 58 459 564 91 77 698 741 61.7 9
6 2008 1,011 935 424 549 98 81 611 750 47.5 54.4
6 2009 38 38 400 549 96 77 608 721 20.5 45.9
6.5 2008 305
190
422
553
97
82
619
737
46.6
47.1 6.5 2009 17 2 461 637 94 81 751 49.4 0
7 2008 34 16 429 555 93 83 635 712 26.2 61 Source: CPRCDR and Citi.
Recent Underwriting Changes May Improve Ginnie Jumbo Convexity
Recent changes to the Ginnie Mae underwriting guidelines will likely impact all Ginnie Mae collateral,
including Ginnie Mae jumbos. In particular, a 25bp increase in the annual insurance premium, will
reduce refinancing incentive by 25bp, which according to Figure 13, may result in slower speeds by
about 5%‐10% CPR.
A possible reduction in the Ginnie Mae conforming limit may further damped jumbo speeds. In a recent
white paper,4
the
Treasury
alludes
that
the
increase
in
the
conforming
limit
due
to
ARRA
may
expire
in
September 2011. Ginnie Mae jumbo borrowers, whose average LTV is above 90%, will typically not be
able to refinance into non‐agency loans, and therefore borrowers with a loan size above the new
conforming limit may not be able to refinance at all.
We estimate that if conforming limits revert to the HERA’s level, jumbo voluntary speeds may decline by
20%‐30%, although a larger drop is possible. The uncertainty in our estimate is due to the fact that the
FHA conforming limits are determined on the MSA level and the exact percentage of loans that would
become non‐conforming is hard to estimate. Figure 15 shows that roughly 20% of Ginnie Mae jumbo
loans will exceed the maximum conforming limit under HERA ($625K). We estimate that perhaps
another 10% of jumbo collateral, while under the maximum conforming limit, will exceed the
conforming limit for their MSA, and therefore will not qualify for another FHA loan.
This analysis suggests that the reduction in the conforming limit may reduce peak in‐the‐money jumbo
speeds from about 60% CPR to about 45%. This would lead to a considerable improvement in the
convexity of jumbo loans. However, since the details of the transition have not been released, risks
remain. For example, it is possible that after ARRA expires, legacy jumbo loans could still be considered
conforming.
4 “Reforming America’s Housing Finance Market. A Report to Congress”, February 2011
8/19/2019 Review of Ginnie Mae Jumbo Collateral
11/12
Review of Ginnie Mae Jumbo Collateral February 24, 2011
This commentary has been prepared by Markets Quantitative Analysis ("MQA"),
which is part of Citigroup Global Markets' sales and trading operations.
11
Figure 15 Average loan s ize quar ti les for Ginn ie Mae J umbo Pools , $ in Thousand.
Min Q2 Q3 Q4 Max
181 457 517 608 874Source: CPRCDR and Citi.
8/19/2019 Review of Ginnie Mae Jumbo Collateral
12/12
Review of Ginnie Mae Jumbo Collateral February 24, 2011
This commentary has been prepared by Markets Quantitative Analysis ("MQA"),
which is part of Citigroup Global Markets' sales and trading operations.
12
Disclaimer
This communication is issued by a member of the sales and trading department of Citigroup Global Markets Inc. or one of
its affiliates (collectively, “Citi”). Sales and trading department personnel are not research analysts, and the information in
this communication (“Communication”) is not intended to constitute “research” as that term is defined by applicable
regulations. Unless otherwise indicated, any reference to a research report or research recommendation is not intended
to represent the whole report and is not in itself considered a recommendation or research report. All views, opinions andestimates expressed in this Communication (i) may change without notice and (ii) may differ from those views, opinions
and estimates held or expressed by Citi or other Citi personnel.
This Communication is provided for information and discussion purposes only. Unless otherwise indicated, it does not
constitute an offer or solicitation to purchase or sell any financial instruments or other products and is not intended as anofficial confirmation of any transaction. Unless otherwise expressly indicated, this Communication does not take into
account the investment objectives or financial situation of any particular person. Recipients of this Communication should
obtain advice based on their own individual circumstances from their own tax, financial, legal and other advisors beforemaking an investment decision, and only make such decisions on the basis of the investor's own objectives, experience
and resources. The information contained in this Communication is based on generally available information and,
although obtained from sources believed by Citi to be reliable, its accuracy and completeness cannot be assured, and such
information may be incomplete or condensed.
Citi often acts as an issuer of financial instruments and other products, acts as a market maker and trades as principal in
many different financial instruments and other products, and can be expected to perform or seek to perform investment
banking and other services for the issuer of such financial instruments or other products.
The author of this Communication may have discussed the information contained therein with others within or outside
Citi and the author and/or such other Citi personnel may have already acted on the basis of this information (including by
trading for Citi's proprietary accounts or communicating the information contained herein to other customers of Citi).Citi, Citi's personnel (including those with whom the author may have consulted in the preparation of this
communication), and other customers of Citi may be long or short the financial instruments or other products referred to
in this Communication, may have acquired such positions at prices and market conditions that are no longer available,
and may have interests different from or adverse to your interests.
Investments in financial instruments or other products carry significant risk, including the possible loss of the principal
amount invested. Financial instruments or other products denominated in a foreign currency are subject to exchange ratefluctuations, which may have an adverse effect on the price or value of an investment in such products. No liability is
accepted by Citi for any loss (whether direct, indirect or consequential) that may arise from any use of the information
contained in or derived from this Communication.
Past performance is not a guarantee or indication of future results. Any prices provided in this Communication (otherthan those that are identified as being historical) are indicative only and do not represent firm quotes as to either price or
size. You should contact your local representative directly if you are interested in buying or selling any financial
instrument or other product or pursuing any trading strategy that may be mentioned in this Communication.
Although Citibank, N.A. (together with its subsidiaries and branches worldwide, "Citibank") is an affiliate of Citi, youshould be aware that none of the financial instruments or other products mentioned in this Communication (unless
expressly stated otherwise) are (i) insured by the Federal Deposit Insurance Corporation or any other governmental
authority, or (ii) deposits or other obligations of, or guaranteed by, Citibank or any other insured depository institution.
IRS Circular 230 Disclosure: Citi and its employees are not in the business of providing, and do not provide, tax or legal
advice to any taxpayer outside of Citi. Any statements in this Communication to tax matters were not intended or writtento be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such
taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
© 2011 Citigroup Global Markets Inc. Member SIPC. All rights reserved. Citi and Citi and Arc Design are trademarks and
service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world.