What is the GNMA or Ginnie Mae?
By now almost anyone with their finger on the pulse of American finance is familiar with both Fannie Mae and Freddie Mac. Their now historic failures are known the world over, but what about Ginnie Mae? If you haven’t heard of Ginnie Mae it stands for Government National Mortgage Association or GNMA for short. During the midst of the great depression, the National Housing Act was enacted by congress in 1934 to help financial lenders deal with the risk of mortgage default. A few years later in 1938 the Federal National Mortgage Association was established to help make it easier for people to gain access to mortgage funding.
Over the next few years numerous amendments and changes were made to these government owned corporations as well as the legislature that governed them and in 1968 the Government National Mortgage Association was established within the Department of Housing and Urban Development. This government owned corporation was responsible for providing guarantees on mortgage backed securities and to ensure liquidity for government issued mortgages.
According to Ginnie Mae, its mission statement is “To expand affordable housing in America by linking global capital markets to the nation's housing markets.” One interesting point is that Ginnie Mae does not sell loans or mortgage backed securities, it insures them. In fact, Ginnie Mae insured mortgage backed securities are the only mortgage backed securities (or MBS for short) guaranteed by the full faith and credit of the United States government. This means investors are guaranteed to receive the principal and interest payments on their investments. This is not the case with corporations like Fannie Mae and Freddie Mac and as a result Ginnie Mae insured securities have seen an increase as of late. For many people the decreased risk that comes with an investment in Ginnie Mae MBS is now more desirable than the potential for larger returns from elsewhere. Given the current state of the U.S. economy it easy to see why a guaranteed return is more important now than ever before.