MBA Chart of the Week: Price Spread Between Ginnie Mae, Fannie Mae Securities

This week’s chart shows the recent price spread (per $100 of face value) between Ginnie Mae and Fannie Mae mortgage-backed securities.   

Ginnie Mae MBS–which have a full faith and credit backing and are composed of federally insured or guaranteed mortgages–have historically traded at a substantial premium relative to government-sponsored enterprise securities, which have historically benefitted from an implicit guarantee and more recently from an explicit Treasury backstop. Higher prices (and lower required yields) for Ginnie Mae MBS have resulted in lower interest rates for the underlying mortgages, like FHA-insured loans.  

Following the FHA’s announcement last January of a reduction in annual mortgage insurance premiums for FHA forward mortgages, the spread between Ginnie Mae and Fannie Mae MBS plummeted. This was due to investor expectation of a dramatic increase in FHA prepayments in Ginnie Mae MBS (which in fact transpired). Spreads have not yet fully recovered, as they are 70 cents tighter (year to date) on average in 2015 relative to 2014.  

To view the Chart of the Week, click https://www.mba.org/news-research-and-resources/forecasts-data-and-reports/forecasts-and-commentary/chart-of-the-week.  

(Lynn Fisher is vice president of research and economics with the Mortgage Bankers Association; she can be reached at lfisher@mba.org. Joel Kan associate vice president of economic forecasting with MBA; he can be reached at jkan@mortgagebankers.org.)