54450 Federal Register / Vol. 70, No. 177 / Wednesday, September 14, 2005 / Proposed Rules 

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. 

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 governmentinsured 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 moderateincome 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 

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

§ 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 § 320.8 to read as follows: 

§ 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