Government National Mortgage Association
Encyclopedia
The Government National Mortgage Association (GNMA), 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 (HUD), Ginnie Mae’s mission is to expand affordable housing in the U.S. by channeling global capital into the nation’s housing finance markets. 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.
responded to the crisis by passing the National Housing Act of 1934
, which established the Federal Housing Administration
(FHA). One of the principal objectives of 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. In that year, Congress partitioned Fannie Mae into two entities:
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
beneficiaries of this guarantee after the US government rescued them from insolvency in 2008.
(MBS) 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.
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 (or related outstanding securities liabilities) 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.
), 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 does it buy, sell or issue securities in the U.S. capital markets. The credit risk on the mortgage collateral underlying its MBS 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.
History
In 1934, during the depths of the Depression, the United States CongressUnited States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
responded to the crisis by passing the National Housing Act of 1934
National Housing Act of 1934
The National Housing Act of 1934, , also called the Capehart Act, was part of the New Deal passed during the Great Depression in order to make housing and home mortgages more affordable. It created the Federal Housing Administration and the Federal Savings and Loan Insurance Corporation.It was...
, which established the Federal Housing Administration
Federal Housing Administration
The Federal Housing Administration is a United States government agency created as part of the National Housing Act of 1934. It insured loans made by banks and other private lenders for home building and home buying...
(FHA). One of the principal objectives of 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. In that year, Congress partitioned Fannie Mae into two entities:
- Fannie Mae, which retained responsibility for purchasing “conventional” (non-Government-guaranteed) mortgages that conformed to specified standards, and
- the Government National Mortgage Association, now known as Ginnie Mae.
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
De facto
De facto is a Latin expression that means "concerning fact." In law, it often means "in practice but not necessarily ordained by law" or "in practice or actuality, but not officially established." It is commonly used in contrast to de jure when referring to matters of law, governance, or...
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 securitiesMortgage-backed security
A mortgage-backed security is an asset-backed security that represents a claim on the cash flows from mortgage loans through a process known as securitization.-Securitization:...
(MBS) to institutional investors worldwide. These securities, or “pools” of mortgage loans, are used as collateral for the issuance of securities on Wall Street
Wall Street
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...
. MBS are commonly referred to as "pass-through" certificates because the principal and interest of the underlying loans is "passed through" to investors.
Ginnie Mae guarantees only securities backed by single-family and multifamily loans insured by government agencies, including the FHA, Department of Veterans Affairs
Department of Veterans Affairs
Department of Veterans Affairs may refer to:*Department of Veterans' Affairs, Australia*United States Department of Veterans Affairs*Veterans Affairs Canada*Ministry of Patriots' and 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 (or related outstanding securities liabilities) 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 (GSE) versus government-owned enterprises
Ginnie Mae is a wholly owned government corporation. Fannie Mae and Freddie Mac, on the other hand, are "government-sponsored enterprises" (GSEsGovernment-sponsored enterprise
A government-sponsored enterprise is a financial services corporation created by the United States Congress. Their function is to enhance the flow of credit to targeted sectors of the economy and to make those segments of the capital market more efficient and transparent...
), 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 does it buy, sell or issue securities in the U.S. capital markets. The credit risk on the mortgage collateral underlying its MBS 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.
Companies
- Fannie Mae
- Federal Home Loan BanksFederal Home Loan BanksThe Federal Home Loan Banks are 12 U.S. government-sponsored banks that provide stable, on-demand, low-cost funding to American financial institutions for home mortgage loans, small business, rural, agricultural, and economic development lending...
- Freddie Mac
- Farmer Mac
- USA FundsUSA FundsUnited 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...