Government National Mortgage Association (GNMA)
The Government National Mortgage Association (GNMA) is a corporation owned by the United States government under the US housing and urban development agency, Department of Housing and Urban Development (HUD), and is headquartered in Washington D.C. It is also commonly called Ginnie Mae.
Ginnie Mae’s two main purposes are to:
1. make sure that government-insured mortgages reamain liquid; and to
2. raise capital for these types of loans by bringing in investors, so as to enable the issuers to issue more loans.
Ginnie Mae ensures that residential mortgage-backed securities (MBS) remain liquid by guaranteeing the timely payment of principal and interests in those mortgages. Securities that are guaranteed by Ginnie Mae are only those that fall under those backed by loans insured by government agencies such as the Federal Housing Authority (FHA), Deparment of Veterans Affaird, Department of Housing and Urban Development’s Office of Public and Indian Housing, and the Department of Agriculture’s Rural Development. For the most part, these are mortgages for first-time home buyers and low-income borrowers.
It is important to understand that Ginnie does not sell, buy, nor issue mortgage-backed securities. Ginnie Mae also does not purchase loans. Its role is to simply guarantee or insure that these loans or mortgages will be paid on time. Its role is very powerful in that unlike its notorious counterparts, Freddie Mac, Fannie Mae and Sallie Mae, which are public-traded companies, investors know that any securities backed by Ginnie Mae is actually backed by the US government. This is important for investors to know since they are sure that even in uncertain economic climates, they will be guaranteed payment of interest and principal, on time and in full.