The Government National Mortgage Association, often called Ginnie Mae, is a federal government corporation that guarantees the timely payment of principal and interest on mortgage-backed securities (MBS) issued by approved lenders. Ginnie Mae plays a crucial role in connecting the U.S. housing market to capital markets, thereby providing low-cost financing for federal housing programs through agencies such as the Federal Housing Administration (FHA), Veterans Affairs (VA), the Department of Agriculture, and Public and Indian Housing.
Key Takeaways
- The Government National Mortgage Association (GNMA) guarantees principal and interest payments on mortgage-backed securities issued by approved lenders.
- Established in 1968 under the U.S. Department of Housing and Urban Development (HUD), Ginnie Mae 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 was founded in 1968 as part of the U.S. Department of Housing and Urban Development (HUD) to make homeownership more affordable. While Ginnie Mae does not create mortgages, it guarantees them for single and multifamily homes. With the government’s backing, homeowners can secure lower interest rates, reducing their borrowing costs. Using a mortgage calculator is an excellent resource for budgeting these costs.
Ginnie Mae doesn’t issue, sell, or buy pass-through mortgage-backed securities nor purchase mortgage loans. Instead, approved private lenders originate eligible loans, pool them into securities, and issue mortgage-backed securities guaranteed by Ginnie Mae. As of April 2023, Ginnie Mae’s MBS portfolio balance was worth $2.4 trillion. By guaranteeing these securities, Ginnie Mae helps open the home mortgage market to first-time homebuyers, low-income borrowers, and other underserved groups.
Ginnie Mae Guarantees
Ginnie Mae guarantees the timely payment of principal and interest from approved issuers, such as mortgage bankers, savings and loans, and commercial banks, for qualifying loans. Investors in Ginnie Mae securities are assured that their investments are backed by the full faith and credit of the U.S. government. This government backing means that investors do not need to worry about the impact of late payments or mortgage defaults on their investment. Should mortgage borrowers fail to make payments, Ginnie Mae will cover them.
Ginnie Mae’s efforts particularly benefit those who have traditionally been underserved in the mortgage market. Most mortgages securitized as Ginnie Mae MBS are insured by the Federal Housing Administration (FHA), which often insures mortgages to first-time homebuyers and low-income borrowers.
History of Ginnie Mae
Following high unemployment rates and unprecedented loan defaults during the Great Depression, Congress passed the National Housing Act of 1934 as part of the New Deal to revive the U.S. housing market and protect lenders from mortgage default.
In 1968, the Federal National Mortgage Association (FNMA), better known as Fannie Mae, was split into two entities with distinct functions. Fannie Mae would purchase conventional loans, while Ginnie Mae would handle government-backed mortgages.
Fannie Mae became a publicly traded company, while Ginnie Mae was established as a government-sponsored entity (GSE) within the Department of Housing and Urban Development (HUD). Ginnie Mae remains the only home-loan agency explicitly backed by the full faith and credit of the United States government.
Ginnie Mae vs. Fannie Mae and Freddie Mac
Several organizations are similar to Ginnie Mae, notably Freddie Mac and Fannie Mae. Freddie Mac and Fannie Mae are government-sponsored enterprises (GSEs) and federally chartered corporations owned by private shareholders.
While Ginnie Mae guarantees only securities that include mortgages guaranteed by federal agencies such as the FHA and VA, Fannie Mae and Freddie Mac may back securities made up of mortgages not insured by the government. Fannie Mae also has a portfolio that invests in its own and other institutions’ mortgage-backed securities.
Ginnie Mae is the only entity among its counterparts that is backed by the full faith and credit of the federal government. However, during the 2008 housing crisis, both Fannie Mae and Freddie Mac were placed under the conservatorship of the Federal Housing Finance Agency, leading some to argue that this blurred the distinction between the agencies in terms of government backing.
Does Ginnie Mae Provide Mortgage Financing?
Ginnie Mae neither originates loans nor provides financing for mortgage issuers. It doesn’t offer insurance to lenders against credit risks from borrowers and doesn’t set standards for loan issuers, such as underwriting or credit standards.
How Does Ginnie Mae Help Make Mortgages More Affordable?
The guarantee from Ginnie Mae allows lenders to obtain better prices for their mortgage loans in the secondary mortgage market. This ability to sell loans at favorable terms enables these lenders to fund new mortgage loans.
Why Are Ginnie Mae Securities Considered a Safe Investment?
Ginnie Mae does not engage in buying or selling loans or issuing mortgage-backed securities (MBS), nor does it use derivatives to hedge its positions or carry long-term debt. This minimizes risk and helps maintain its stability.
The Bottom Line
The Government National Mortgage Association (GNMA), commonly known as Ginnie Mae, guarantees principal and interest payments on mortgage-backed securities issued by approved lenders. Backed by the full faith and credit of the federal government, Ginnie Mae stands apart from other entities like Fannie Mae and Freddie Mac. Established in 1968, its mission remains to promote affordable homeownership and make mortgages attainable for all Americans.
Related Terms: Federal Housing Administration, Veterans Affairs, Mortgage-Backed Securities, Fannie Mae, Freddie Mac.
References
- Ginnie Mae. “About Us”.
- GinnieMae. “Our History”.
- Ginnie Mae. “Press Releases”.
- Ginnie Mae. “Funding Government Lending”.
- Bipartisan Policy Center. “Ginnie Mae: How Does it Work and What Does it Do?”, Page 1.
- U.S. Department of Housing and Urban Development. “Government National Mortgage Association (Ginnie Mae)”.
- GinnieMae.gov. “Our History”.
- Federal Housing Finance Agency. “A Brief History of the Housing Government-Sponsored Enterprises”, Page 1.
- Federal Housing Finance Agency. “History of Fannie Mae and Freddie Mac Conservatorships”.
- Ginnie Mae. “Funding Government Lending”.
