'Burnout' can hit even the sturdy Ginnie Maes

There's a problem with ''hot'' investments: They tend to burn out quickly. That almost happened to Ginnie Mae unit trusts, those pools of mortgage-backed securities issued by the Government National Mortgage Association which were sold to investors for as little as $1,000. Less than $200 million of these federally insured trusts were sold in 1980 and '81, but sales shot up to $3.2 billion in 1982 and $4.3 billion in 1983. In the first nine months of this year, however, the total had dropped back to under $200 million.

What happened?

''The way they were structured was all wrong,'' explains Gary Peters, senior vice-president and director of mortgage-backed securities at Butcher & Singer Inc., a brokerage. ''Investors suffered drastic drops in yield because of this structure.''

Fortunately, the structure is changing and new products based on Ginnie Maes are available that provide less confusion and a more dependable source of income.

Before the changes, Peters said in an interview from his Hallandale, Fla., offices, the main attraction of Ginnie Mae trusts were high yields, sometimes several points higher than money market funds. It is possible, for instance, to find newspaper ads touting Ginnie Mae pools paying 131/2 percent interest. But a big share of those yields - too big a share, Mr. Peters says - was based on high-interest mortgages, just the sort of mortgages homeowners are most likely to pay off early.

Brokerages sometimes have had over one-third of the portfolio in high-rate mortgages charging 15 percent or more. The rest would be in 91/2 or 10 percent mortgages.

As interest rates declined, some of the homeowners paying those higher rates refinanced into cheaper mortgages, which meant investors started getting back part of their principal, in addition to interest payments. The result was an unexpected early exhaustion of income. While fewer brokers are offering Ginnie Mae unit trusts on this basis, some are still doing so, Peters says.

There are, however, a few ways to avoid or at least minimize this problem.

One way, he recommends, is to look for unit trusts with a higher proportion of lower-yielding mortgages in the portfolio. This may result in lower income from the trust, but it will likely last longer. A unit trust now might offer a yield of 113/4 or 12 percent. It helps, Peters says, that most brokerages are recognizing this problem and selling Ginnie Mae trusts with more ''honest'' yields.

''Instead of selling with a premium rate, most unit trusts are now selling at par,'' he notes. ''There's no funny business. They took away the hype, which is good.''

Another way to avoid trouble is with a Ginnie Mae mutual fund. Both unit trusts and mutual funds give investors a portion of a pool of assets that can be purchased for a relatively small amount - again, usually $1,000.

But a unit trust is just a group of Ginnie Mae bonds that have been purchased and left in the portfolio. The trust is not managed, and its makeup does not change (except for the gradual payoff of the mortgages).

A mutual fund, on the other hand, is under continuous management. Ginnie Mae bonds can be bought and sold without the investor seeing any change in income, and part of the assets can be moved into other investments, like US Treasury securities, if market conditions call for it.

Ginnie Mae funds can also delay the day when the pool is exhausted by reinvesting principal payments and only sending interest to the investor. Or, they can reinvest the interest, too.

The axiom of ''lower risk, lower yield'' holds true here. Ginnie Mae mutual funds often pay about half a percentage point less than unit trusts. That doesn't seem to have bothered many investors, who helped boost the assets of these funds from about $200 million in 1983 to $2.7 billion through the first nine months of 1984.

Income averaging changes

I think I might be eligible for income averaging this year, since I have a new job with substantially higher wages. Can you explain the changes in income averaging outlined in this year's tax law?- A. I.

The 1984 tax greatly reduced the benefits associated with income averaging, but if your 1984 income is much higher compared with previous years, you may qualify. The idea behind income averaging is the same: to ease the impact of the graduated tax system by permitting the current year's income to be computed as if it had been received over a four-year period. You can use income averaging if your income is at least $3,000 higher than 140 percent of the average income for the previous three years. The computation is done on Schedule G.

People who think 1984 has been an exceptional year and have had extra income for this year only, should - if they still can - try to accelerate any income into this year and postpone deductible expenses into 1985, to improve the tax benefits of income averaging. If you would like a question considered for publication in this column, please send it to Moneywise, The Christian Science Monitor, One Norway Street, Boston, Mass. 02115. No personal replies can be given by mail or phone. References to investments are not an endorsement or recommendation by this newspaper.m

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