REMIC share grows at Ginnie Mae, Fannie Mae and Freddie Mac

Global interest appears to be fueling a notable pickup in issuance of real estate mortgage investment conduit securities at Ginnie Mae, Freddie Mac and Fannie Mae, according to a new report.

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REMICs made up $80 billion or 40% of Ginnie Mae single-family mortgage-backed securities issuance year-to-date in April. In addition, financial disclosures show broader agency REMIC issuance was at its highest point in at least two years in March.

During that month, single- and multifamily REMIC issuance combined accounted for $24.36 billion at Ginnie, $19.54 billion at Freddie and $13.64 billion at Fannie, bringing the total for all three agencies to more than $57 billion. Monthly totals generally run well under $50 billion.

The trend partially reflects international investor demand, which represents roughly 20% of the buyers investing in Ginnie Mae’s MBS.

“Many overseas investors seek high-quality U.S. dollar-denominated assets but may not desire the full duration and convexity exposure associated with traditional 30-year pass-through securities,” according to Ginnie Mae’s Global Markets Analysis report.

REMICs allow the cash-flows from collateral home loans to be carved up into tranches that have different maturities, rates and payment structures. 

This helps extend the investor base not only to investors outside the United States but more generally to a variety of buyers globally, including depository institutions, insurers and hedge funds.

Regulatory change may be a factor

One trend that could further grow REMIC interest is careful relaxation of regulatory rigor instilled following the Great Financial Crisis overseas.

Ginnie Mae securitizations already have very low risk weightings under capital rules undergoing revision in the United States, but some countries have taken a more cautious approach that’s currently under review.

Ginnie’s report points to efforts to modernize Europe’s 2016 regulatory framework for insurers, which it said, “indicates a willingness to recognize structural protections in securitizations that should improve capital requirements on agency REMICs over time.”