Government National Mortgage Association

The Government National Mortgage
Association, or Ginnie Mae, was established in the United States in 1968
to promote home ownership. As a wholly owned government corporation within the
Department of Housing and Urban Development, Ginnie Mae’s mission is to
expand affordable housing finance in America by linking domestic and global
capital to the nation’s housing finance markets, providing liquidity to
federally sponsored mortgage lending programs.
The Ginnie Mae guarantee allows mortgage lenders to obtain a better price for
their loans in the capital markets. Lenders then can use the proceeds to
make new mortgage loans available to consumers. This also helps to lower
financing costs and create opportunities for sustainable, affordable housing for
families seeking home ownership. History
In 1934, during the depths of the Great Depression, Congress responded to the
crisis by passing the National Housing Act of 1934, which established the
Federal Housing Administration. One of the principal objectives of the FHA was
to increase the flow of capital to the housing markets by insuring private
lenders against the risk of mortgage default. FHA also was tasked with
chartering and regulating a national mortgage association that would buy and
sell FHA-insured mortgages. In 1938, Congress amended the act to
create the Federal National Mortgage Association, more commonly known as
“Fannie Mae”, to help mortgage lenders gain further access to capital for
mortgage loans. The provisions of the act changed
gradually over the years. It was not until 1968, however, in response to the
need to further broaden the capital base available for mortgages that the housing
finance system began to resemble its current form. As part of the Housing and
Urban Development Act of 1968, Congress partitioned Fannie Mae into two
entities: Fannie Mae, which was still originally
restricted to purchasing FHA/VA mortgages, and
Ginnie Mae, formerly the Government National Mortgage Association, which
originally only provided insurance for bonds issued by FHA/VA mortgages in
special affordable housing programs. Today, Ginnie Mae securities are the
only mortgage-backed securities that are backed by the “full faith and credit”
guaranty of the United States government, although some have argued
that Fannie Mae and Freddie Mac securities are de facto or “effective”
beneficiaries of this guarantee after the US government rescued them from
insolvency in 2008. Business
Ginnie Mae guarantees the timely payment of principal and interest payments on
residential mortgage-backed securities to institutional investors worldwide.
These securities, or “pools” of mortgage loans, are used as collateral for the
issuance of securities on Wall Street. MBS are commonly referred to as
“pass-through” certificates because the principal and interest of the underlying
loans is “passed through” to investors. Because of Ginnie Mae’s financial
backing, these MBS are particularly attractive to investors and, like other
Agency MBS, are eligible to be traded in the “to-be-announced,” or “TBA” market.
Ginnie Mae guarantees only securities backed by single-family and multifamily
loans insured by government agencies, including the FHA, Department of
Veterans Affairs, the Department of Housing and Urban Development’s Office
of Public and Indian Housing and the Department of Agriculture’s Rural
Development. Ginnie Mae neither originates nor
purchases mortgage loans. It does not purchase, sell, or issue securities.
Accordingly, Ginnie Mae does not use derivatives to hedge and it does not
carry long-term debt on its balance sheet. Instead, private lending
institutions approved by Ginnie Mae originate eligible loans, pool them into
securities, and issue the Ginnie Mae MBS. These institutions include
geographically diverse mortgage companies, commercial banks, and thrifts
of all sizes, as well as state housing finance agencies.
Role in the housing recovery In 1970, Ginnie Mae became the first
organization to create and guarantee MBS products and has continued to provide
critical mortgage funds for homebuyers ever since. Even in uncertain times,
investors are guaranteed payment of interest and principal, in full and on
time. The benefits of this process are passed on to the lenders who can then
make more mortgage loans at more affordable rates.
Government-sponsored enterprises and government-owned enterprises
Ginnie Mae is a wholly owned government corporation. Fannie Mae and Freddie Mac,
on the other hand, are “government-sponsored enterprises”,
which are federally chartered corporations, but still privately owned
by shareholders. In September 2008, the GSEs were placed under government
conservatorship, effectively wiping out shareholders.
Ginnie Mae neither originates nor purchases mortgage loans nor buys, sells
or issues securities in the U.S. capital markets. The credit risk on the mortgage
collateral underlying its MB securities primarily resides with other insuring
government agencies. Rather, Ginnie Mae is the guarantor of MBS issued by
government-approved securities issuers who participate in Ginnie Mae’s program.
See also Title 24 of the Code of Federal
Regulations Agency Securities
Mortgage loan Real estate
=Companies=Fannie Mae
Federal Home Loan Banks Freddie Mac
Farmer Mac USA Funds
References ^ Kopecki, Dawn. “Fannie, Freddie Have
`Effective’ Guarantee, FHFA Says”. October 23, 2008. bloomberg. Retrieved
15 May 2013. ^ Lemke, Lins and Picard,
Mortgage-Backed Securities, Chapters 2 and 4.
External links Ginnie Mae homepage

Paul Whisler

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