The
Government National Mortgage Association (
GNMA, also known as
Ginnie Mae) is a U.S. government-owned corporation within the
Department of Housing and Urban DevelopmentThe United States Department of Housing and Urban Development, also known by as HUD, is a Cabinet department in the Executive branch of the United States federal government...
(HUD), and is headquartered in
Washington, D.C.Washington, D.C. , formally the District of Columbia and commonly referred to as Washington, the District, or simply D.C., is the capital of the United States, founded on July 16, 1790...
.
Ginnie Mae provides guarantees on
mortgage-backed securitiesA mortgage-backed security is an asset-backed security or debt obligation that represents a claim on the cash flows from mortgage loans, most commonly on residential property....
(MBS) backed by federally insured or guaranteed loans, mainly loans issued by the
Federal Housing AdministrationThe Federal Housing Administration is a United States government agency created as part of the National Housing Act of 1934. The goals of this organization are: to improve housing standards and conditions; to provide an adequate home financing system through insurance of mortgage loans; and to...
,
Department of Veterans AffairsDepartment of Veterans Affairs may refer to:*Department of Veterans' Affairs*United States Department of Veterans Affairs*Veterans Affairs Canada*Ministry of Patriots' and Veterans' Affairs...
,
Rural Housing ServiceThe Rural Housing Service is an agency of the United States Department of Agriculture . Located within the Department's Rural Development mission area, RHS operates a broad range of programs to provide:*homeownership options to individuals;...
, and
Office of Public and Indian HousingThe Office of Public and Indian Housing is an agency of the United States Department of Housing and Urban Development. Its mission is to ensure safe, decent, and affordable housing, create opportunities for residents' self-sufficiency and economic independence, and assure the fiscal integrity of...
. Ginnie Mae securities are the only MBS that are guaranteed by the United States government.
The GNMA was created by the
United States Federal GovernmentThe federal government of the United States is the central government entity established by the United States Constitution, which shares sovereignty over the United States with the governments of the individual U.S. states. The federal government has three branches: the legislative, executive, and...
through a 1968 partition of the
Federal National Mortgage AssociationThe Federal National Mortgage Association , commonly known as Fannie Mae, is a stockholder-owned corporation chartered by Congress in 1968 as a government-sponsored enterprise , but founded in 1938 during the Great Depression...
. As with other government sponsored enterprises, Ginnie Mae uses a creative acronym of the company's full name, adopted officially for ease of identification.
Business
GNMA securities provide a connection between the capital markets and mortgage borrowers; investors purchase mortgage-backed securities (MBS also called RMBS), and borrowers gain access to investor funds. Capital market funding through MBS is much more efficient and provides a much larger funding base than traditional deposit-funding (e.g., Savings and Loan model circa pre-1989
savings and loan crisisThe savings and loan crisis of the 1980s and 1990s was the failure of 745 savings and loan associations . A Savings and Loan is a financial institution in the United States that accepts savings deposits and makes mortgage, car and other personal loans to individual members...
).
GNMA primarily does two things. First, it provides a computer platform that efficiently pools mortgages into bonds from pre-approved lenders. Second, GNMA provides, for 6 basis points of the outstanding principal balance of a bond, a guarantee of timely payment of principal and interest; this is essentially a guarantee that the United States government will continue to pay investors even if the underlying collateral (government insured mortgages) defaults. GNMA securities thus have the same credit rating as the government of the United States and for capital purposes have risk-weighting of zero.
GNMA guarantees the following types of securities:
- GNMA I securities. A GNMA I (Ginnie Mae one) represents a pool of mortgages all issued by one issuer, all with the same interest rate, and all issued within a three month period. This is a basic pass-through security.
- GNMA II securities. A GNMA II (Ginnie Mae two) is also a pass-through security, except that the collateral can have a range of interest rates and can include mortgages issued by more than one issuer. In this case, the service fees (see below) vary, so that the new interest rate being paid to the investor from each mortgage is the same.
- GNMA "REMIC
.Remic is a Japanese animation studio. They are notable for doing the animation in the anime series Renkin 3-kyū Magical ? Pokān and Dōjin Work.-Produced series:Renkin 3-kyū Magical ? Pokān*Series run: April 4 2006 — June 20 2006...
" securities. A REMIC (Real Estate Mortgage Investment Conduit), also known as a CMO, is an additional level of securitization. The collateral pool for a REMIC consists not of mortgages, but of mortgage-backed securities (such as GNMA I, GNMA II, or previously issued REMICs).
Pools are created by lenders. For example, a mortgage lender may sign up 100 home mortgages in which each buyer agreed to pay a fixed
interestInterest is a fee paid on borrowed assets. It is the price paid for the use of borrowed money, or, money earned by deposited funds. Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories in...
rate of 6% for a 30-year term. The lender (who must be an approved issuer of GNMA certificates) obtains a guarantee from the GNMA and then sells the entire pool of mortgages to a
bondIn finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest and/or to repay the principal at a later date, termed maturity...
dealer in the form of a "GNMA certificate". The bond dealer then sells GNMA mortgage-backed securities, paying 5.5% in this case and backed by these mortgages, to
investorAn investor is any party that makes an investment.The term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase equity or debt securities for financial gain in exchange for funding an expanding company...
s. The original lender continues to collect payments from the home buyers and forward the money to a paying agent who pays the holders of the bonds.
As these payments come in, the paying agent pays the principal that the home owners pay (or, if some home owners fail to make the scheduled payment, the amount that they are scheduled to pay) and the 5.5%
bond couponThe coupon or coupon rate of a bond is the amount of interest paid per year expressed as a percentage of the face value of the bond. It is the interest rate that a bond issuer will pay to a bondholder.-Overview:...
payments to the investors. The difference between the 6% interest rate paid by the home owner and the 5.5% interest rate received by the investors consists of two components. Part of it is a guarantee fee (which GNMA gets) and part is a "servicing" fee, meaning a fee for collecting the monthly payments and dealing with the homeowner. If a home buyer defaults on payments, GNMA pays the bond coupon, as well as the scheduled principal payment each month, until the property is foreclosed. If (as is often the case) there is a shortfall (meaning a loss) after a foreclosure, GNMA still makes a full payment to the investor. If a home buyer prematurely pays off all or part of his loan, that portion of the bond is retired, or "called", the investor is paid accordingly, and no longer earns interest on that portion of his bond.
The GNMA said in its 2003 annual report that, over its history, it had guaranteed securities on the mortgages for over 30 million homes totaling over $2 trillion. It guaranteed $215.8 billion in these securities for the purchase or refinance of 2.4 million homes in 2003.
See also
- Agency Securities
Agency securities are specific securities that are issued by either Ginnie Mae, Fannie Mae, Freddie Mac or the Federal Home Loan Banks.These securities are backed by mortgage loans, and due to their creation from these particular corporations that are sponsored by the U.S. government, they enjoy...
- Mortgage
A mortgage is the transfer of an interest in property to a lender as a security for a debt - usually a loan of money. While a mortgage in itself is not a debt, it is the lender's security for a debt...
- Mortgage loan
A mortgage loan is a loan secured by real property through the use of a document which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
- Real Estate
Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings, specifically property that is fixed in location.
"Real estate" The American Heritage Dictionary of the English Language, Fourth Edition. Houghton Mifflin...
- Mortgage GSE controversy
The controversy in relation to the United States mortgage government sponsored enterprises was triggered by accounting scandals, which urged the US government to consider tightening the control over them....
Companies
- Fannie Mae
- Federal Home Loan Banks
The Federal Home Loan Banks provide stable, on-demand, low-cost funding to American financial institutions for home mortgage loans, small business, rural, agricultural, and economic development lending. With their members, the FHLBank System represents the largest collective source of home mortgage...
- Freddie Mac
- Farmer Mac
- USA Funds
United Student Aid Funds or USA Funds is a nonprofit corporation that works to enhance postsecondary-education preparedness, access and success by providing and supporting financial and other valued services...