New mortgage-backed securities based on packages of conventional homes mortgages are expected to become an increasingly important source of funds for additional home loans, according to Leon T. Kendall, president of Mortgage Guaranty Insurance Corp. MGIC provides private mortgage insurance for the upper end of low-down-payment home loans made by savings and loan institutions and other lenders.
The new "pass-through" certificates are enabling lenders to offer monthly payments of principal and interest to investors willing to commit a minimum of $25,000 on a long-term basis.
In what he described as a "marriage of the home mortgage market and the capital markets," some lenders now are marketing securities or certificates based on varied home loans and thus obtaining new funds for more mortgages while servicing and paying mortgages while servicing and paying off the "packaged mortgages."
For instance, the Bank of America recently began offering 8 3/8 per cent certificates based on a packaged of its mortgages. Kendall said that the idea has been gaining ground this year. Other thrift institutions, lenders and mortgage bankers also are expected to participate in the offerings, which are handled by major investment banking companies.
Kendall, whose Milwaukee-based MGIC firm pioneered in private mortgage insurance, said that the top part of the mortgage pool or package would be insured under a plan devised by William B. Ross, senior vice president of MGIC. Ross formerly was with the Federal National Mortgage Association, which established a secondary market, or reselling vehicle, for home loans in packages. In those transactions, the actual mortgages are bought and sold.
"On the basis on early experience and our knowledge of the investing market, we expect pension funds, trusts and major insurance companies to make investments in these packaged mortgage pools because of the favourable rate or return and the strenth of the residential loan market," Kendall added.
"For instance, there is an insurance aspect and also a broad portfolio to take care of any fefaults or foreclosures. And the rate of appreciation of single houses in almost all parts of the nation in recent years makes a certificate based on them both sound and attrative."
Kendall was in the Washington area yesterday to explain the new concept of private, mortgage-backed securities to a group of nearly 100 representatives of area lending institutions.
The government National Mortgage Association pioneered in putting together packages of government backed loans; this private market, plan was devised for conventional mortgage, he explained.
"Just an FHA set the procedure for government mortgage insurance and it was adopted by private mortgage insurers, so too can this program be adapted with private lending institutions setting up a pass-through certificate and doing the mortgage servicing and origination," Kendall said.
What's in if for the home buyer? "More money coming into the mortgage market shoule help to stabilize rates and make more loans available. It may also tend to establish more of a national mortgage rate as these mortgage pools are bought and sold," Kendall asserted.