The Government’s National Mortgage Association
The Government National Mortgage Association, a governmental company, ensures timely payment of principal and interest on mortgage-backed securities (MBSs) from certified lenders. Ginnie Mae offers low-cost financing for federal housing programs, including FHA, VA, USDA, and HUD’s Public and Indian Housing, by connecting the U.S. housing market to capital markets.
Ginnie Mae’s Job
The Government National Mortgage Association, founded in 1968 by HUD, aims to encourage affordable homeownership. Mae guarantees single- and multifamily mortgages but does not develop them. Homeowners may enjoy reduced interest rates and cheaper borrowing expenses with government-backed loans. A mortgage calculator is an excellent tool for budgeting these expenses.
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Ginnie Mae does not acquire mortgage loans or pass-through mortgage-backed securities. Approved private lenders originate qualified loans, aggregate them into securities, and issue Ginnie Mae-guaranteed mortgage-backed securities. Ginnie Mae’s MBS portfolio totaled $2.4 trillion in April 2023.
Ginnie Mae insures mortgage-backed securities to help first-time homebuyers, low-income borrowers, and others get mortgages.
Guaranteed by Ginnie Mae
For qualifying loans, Ginnie Mae guarantees timely principal and interest payments from licensed issuers, including mortgage bankers, savings and loans, and commercial banks. Investors in GNMA securities are unaware of the mortgage issuer, but Ginnie Mae and the U.S. government are backing the security, similar to Treasury instruments.
Investors in Ginnie Mae funds can invest without worrying about late payments or mortgage defaults due to the GNMA guarantee. Ginnie Mae covers mortgage defaults.
Ginnie Mae helps underserved mortgage buyers. The Federal Housing Administration (FHA) insures most Ginnie Mae MBS mortgages, targeted at first-time home purchasers and low-income borrowers.
History of Ginnie Mae
In response to the Great Depression and high unemployment rates, Congress created the National Housing Act of 1934 as part of the New Deal to restore the U.S. housing market and safeguard lenders against mortgage defaults.
Thirty years after its founding, Fannie Mae, the Federal National Mortgage Association (FNMA), was divided into two corporations with distinct roles in 1968. Fannie Mae would buy conventional and Ginnie Mae government-backed mortgages.
Previously a government-sponsored enterprise (GSE), Fannie Mae became a publicly listed firm. HUD created Ginnie Mae as a GSE. Ginnie Mae is the only U.S. government-backed home-loan agency.
Fannie + Freddie vs. Ginnie
Examples of organizations like Ginnie Mae are Freddie Mac and Fannie Mae. Federally chartered Freddie Mac and Fannie Mae are government-sponsored enterprises (GSEs) with private stockholders.
While Ginnie Mae guarantees only securities with FHA and VA-guaranteed mortgages, its cousins may back assets with non-government mortgages. Fannie Mae invests in mortgage-backed securities from its own and other organizations.
Ostensibly, the GNMA is the only Mae or Mac with official backing. The Federal Housing Finance Committee supervised Fannie Mae and Freddie Mac during the 2008 housing crisis on behalf of the government. Some believe the bailout eliminated Ginnie Mae’s status as the sole federal institution insuring mortgage securities with government protection against failure.
Does Ginnie Mae finance mortgages?
Mortgage issuers do not get loans from Ginnie Mae. The GNMA doesn’t insure lenders against borrower credit concerns. Ginnie Mae doesn’t establish loan issuer underwriting or credit requirements.
How does Ginnie Mae improve mortgage affordability?
In the secondary mortgage market, Ginnie Mae-guaranteed mortgages fetch a higher price and allow lenders to fund new mortgages.
Why are Ginnie Mae Securities safe?
Ginnie Mae doesn’t purchase or sell loans, issue MBS, hedge, or carry long-term debt via derivatives.
The Verdict
Ginnie Mae guarantees principal and interest payments on mortgage-backed securities from qualified lenders. The federal government guarantees the GNMA, unlike Fannie Mae and Freddie Mac. The 1968-founded Ginnie Mae promoted affordable homeownership.
Conclusion
- The Federal Government National Mortgage Association (GNMA) guarantees principal and interest payments on certified lender mortgage-backed securities.
- HUD created Ginnie Mae in 1968 to encourage affordable homeownership.
- The federal government guarantees the GNMA, unlike Fannie Mae and Freddie Mac.
