What is ‘Ginnie Mae – Government National Mortgage Association ‘
Government National Mortgage Association (commonly referred to as Ginnie Mae and abbreviated to GNMA) is a U.S. government corporation within the U.S. Department of Housing and Urban Development (HUD) that was established in 1968 to promote home ownership. Ginnie Mae allows mortgage lenders to obtain a better price for their loans in the capital markets, which allows lenders to use the proceeds to make new mortgage loans available to consumers. In addition to helping lenders issue more, this also helps to lower financing costs, which then leads to affordable housing.
Ginnie Mae aims to expand affordable housing in America by insuring liquidity for government-insured mortgages, including those insured by the Federal Housing Administration (FHA), the Veterans Administration (VA) and the Rural Housing Administration (RHA). Most of the mortgages securitized as Ginnie Mae mortgage-backed securities (MBSs) are those guaranteed by FHA, which are typically mortgages for first-time home buyers and low-income borrowers.
BREAKING DOWN ‘Ginnie Mae – Government National Mortgage Association ‘
Ginnie Mae neither issues, sells or buys pass-through mortgage-backed securities, nor does it purchase mortgage loans. Instead, private lending institutions approved by Ginnie Mae originate eligible loans, pool them into securities, and issue the Ginnie Mae mortgage-backed securities instruments. In this way, Ginnie Mae simply guarantees the timely payment of principal and interest from approved issuers (such as mortgage bankers, savings and loans, and commercial banks) of qualifying loans, such as those issued by the FHA and RHA.
Unlike its cousins Freddie Mac, Fannie Mae and Sallie Mae, Ginnie Mae is not a publicly-traded company; it is a federally-owned corporation. An investor in a GNMA security will not know who the underlying issuer of the mortgages is, but merely that the security is guaranteed by GNMA, which is backed by the full faith and credit of the U.S government, just like U.S. Treasuries. Investors with shares in Ginnie Mae funds never have to worry about late payments or mortgage defaults: when mortgage borrowers fail to make a payment, Ginnie Mae steps in to honor those missed payments.
Ginnie Mae was the first organization to create and guarantee mortgage-backed securities in 1970; it has continued to provide these funds ever since. By offering guarantees on securitized loans, Ginnie Mae is instrumental in keeping the nation’s housing market moving: the investments in these funds help create new lending opportunities. Even in uncertain times, investors are guaranteed payment of interest and payment, in full and on time. Because they know they’ll always receive payments, lenders can create more mortgages at more affordable rates.