What Is the Government National Mortgage Association?
The Government National Mortgage Association, also known as Ginnie Mae, is a federal government corporation that ensures the timely payment of principal and interest on mortgage-backed securities (MBSs) issued by approved lenders. Acting as a vital link between the United States housing market and capital markets, Ginnie Mae facilitates low-cost financing for federal housing programs supported by the Federal Housing Administration (FHA), Veterans Affairs (VA), the Department of Agriculture, and HUD’s Public and Indian Housing.
Key Takeaways
- The GNMA guarantees principal and interest payments on mortgage-backed securities issued by approved lenders.
- Ginnie Mae, established in 1968 under HUD, aims to promote affordable homeownership.
- Unlike Fannie Mae or Freddie Mac, Ginnie Mae is backed by the full faith and credit of the federal government.
What Does Ginnie Mae Do?
Ginnie Mae, formed in 1968 as part of HUD, plays a crucial role in promoting affordable homeownership by guaranteeing mortgages for single and multifamily homes. By providing government backing to these loans, Ginnie Mae enables homeowners to secure lower interest rates, effectively reducing their borrowing costs. Utilizing a mortgage calculator can assist in budgeting these expenses.
Ginnie Mae operates within the mortgage market by offering guarantees for securities based on eligible loans originated by approved private lenders. Instead of dealing directly with mortgage assets, Ginnie Mae ensures mortgage-backed securities, with a significant portfolio balance of $2.4 trillion as of April 2023.
Ginnie Mae’s guarantee support extends to underserved groups in the housing market, including first-time homebuyers, low-income individuals, and other marginalized populations.
Ginnie Mae Guarantees
Ginnie Mae guarantees the timely payment of principal and interest for qualifying loans issued by approved entities like mortgage bankers, savings and loans, and commercial banks. Investors in GNMA securities benefit from the assurance that their investments are backed by Ginnie Mae and the full faith and credit of the U.S. government, similar to U.S. Treasury instruments.
This guarantee safeguards investors in Ginnie Mae funds from the impacts of late payments or mortgage defaults, as Ginnie Mae assumes responsibility in such instances.
Ginnie Mae’s commitment benefits those traditionally underserved in the mortgage market, particularly through the insurance of mortgages by the Federal Housing Administration (FHA) for first-time buyers and low-income borrowers.
History of Ginnie Mae
In response to the Great Depression, Congress enacted the National Housing Act of 1934 as part of the New Deal to revitalize the U.S. housing market and shield lenders from mortgage defaults.
By 1968, Federal National Mortgage Association (FNMA), known as Fannie Mae, underwent a split resulting in Fannie Mae purchasing conventional loans while Ginnie Mae focused on government-backed mortgages.
Fannie Mae transitioned to a publicly traded entity, while Ginnie Mae, established under HUD, remained a government-sponsored enterprise (GSE) uniquely backed by the full faith and credit of the U.S. government.
Ginnie Mae vs. Fannie Mae and Freddie Mac
Ginnie Mae, Fannie Mae, and Freddie Mac are entities with distinct roles. While Ginnie Mae guarantees securities tied to federally insured mortgages, Fannie Mae and Freddie Mac extend their support to securities backed by non-government insured mortgages.
During the 2008 housing crisis, Fannie Mae and Freddie Mac faced government intervention, yet Ginnie Mae retained its federal backing, solidifying its position as the sole federal agency offering government-protected mortgage securities.
Does Ginnie Mae Provide Mortgage Financing?
Ginnie Mae does not originate loans or provide financing to mortgage issuers. It does not offer insurance against borrower credit risks or set standards for loan issuers, such as underwriting criteria.
How Does Ginnie Mae Help Make Mortgages More Affordable?
By guaranteeing mortgages, Ginnie Mae assists lenders in obtaining better terms in the secondary market, allowing them to reinvest in new mortgage opportunities.
Why Are Ginnie Mae Securities Considered a Safe Investment?
Ginnie Mae’s prudent approach to loan management, non-involvement in derivatives or long-term debt, contributes to the safety of its securities, making them an attractive investment option.
The Bottom Line
Ginnie Mae, the Government National Mortgage Association, ensures the timely payment of principal and interest on MBSs from approved lenders. Endorsed by the federal government’s full faith and credit, Ginnie Mae has been promoting affordable homeownership since its inception in 1968.