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Encyclopedia > Government National Mortgage Association

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 Development (HUD). Image File history File links No higher resolution available. ... Motto: (traditional) In God We Trust (official, 1956–present) Anthem: The Star-Spangled Banner Capital Washington, D.C. Largest city New York City Official language(s) None at the federal level; English de facto Government Federal Republic  - President George W. Bush (R)  - Vice President Dick Cheney (R) Independence - Declared - Recognized...


Ginnie Mae provides guarantees on mortgage-backed securities (MBS) backed by federally insured or guaranteed loans, mainly loans issued by the Federal Housing Administration, Department of Veterans Affairs, Rural Housing Service, and Office of Public and Indian Housing . Ginnie Mae securities are the only MBS that are guaranteed by the United States government. The FHAs logo The Federal Housing Administration (FHA) is a United States government agency created as part of the National Housing Act of 1934. ... The United States Department of Veterans Affairs (VA) is a Cabinet department of the United States government responsible for administering programs of veterans benefits for veterans, their families, and survivors. ... Rural Housing Service - Wikipedia, the free encyclopedia /**/ @import /skins-1. ... The Office of Public and Indian Housing (PIH) is an agency of the United States Department of Housing and Urban Development. ...


The GNMA was created by the United States Federal Government through a 1968 partition of the Federal National Mortgage Association. This article describes the government of the United States. ... The Federal National Mortgage Association (FNMA) (NYSE: FNM), commonly known as Fannie Mae, is a government sponsored enterprise (GSE) sponsored by the United States government. ...

Contents

Business

The GNMA, along with several government-sponsored enterprises (GSEs), sells bonds which are backed or collateralized by pools of mortgages in the secondary market. When the mortgages are FHA and VA backed, there is no default risk. The government sponsored enterprises (GSEs) are a group of financial services corporations created by the United States Congress. ... The secondary market is the financial market for trading of securities that have already been issued in an initial private or public offering. ...


GNMA's securitization provides a connection between the capital markets and mortgage borrowers; investors gain access to the mortgage securities market, and borrowers gain access to a greater pool of funds. These funds serve to lower the rates on mortgages in the primary market so that more people are able to buy and mortgage a home. The GNMA does this by guaranteeing the timely payment of the principal and interest payments on mortgage-backed securities. The primary is that part of the capital markets that deals with the issuance of new securities. ... A mortgage-backed security (MBS) is an asset-backed security whose cash flows are backed by the principal and interest payments of a set of mortgage loans. ...


There are several types of GNMA securities that are active in the institutional fixed income markets:

  • GNMA I securities. A GNMA I (the "I" is a Roman numeral one) represents a pool of mortgages all issued by one issuer, all with the same interest rate, and all issued at around the same time (within a few months).
  • GNMA II securities. A GNMA II is similar to a GNMA I, except that the mortgages 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" securities. A REMIC (Real Estate Mortgage Investment Conduit) 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 interest 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 bond 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 investors. The original lender continues to collect payments from the home buyers, and forwards the money to a paying agent who pays the holders of the bonds. As these payments come in, the paying agent pays the principal which the home owners pay (or the amount that they are scheduled to pay, if some home owners fail to make the scheduled payment), and the 5.5% bond coupon 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 proportion of his bond. Real Estate Mortgage Investment Conduit, or REMIC, is a United States investment-grade mortgage security that separates mortgage pools into different maturity and risk classes. ... ... It has been suggested that Interest expense be merged into this article or section. ... For alternative meanings, see bond (a disambiguation page). ... An investor is any party that makes an investment. ... In finance, coupons are attached to bonds, either physically, as with old bonds (with a stapler), or electronically. ...


The arrangement seemingly benefits everyone involved:

  • The mortgage lender has offloaded all risk to the GNMA, and has very quickly received a reimbursement of the money lent to home buyers from the bond dealer, and can immediately use this money to offer another pool of loans to the public.
  • The home-buying public benefits from lower mortgage rates caused by the large amount of lender competition, in turn caused by a large supply of lenders, which is enabled by this quick reimbursement of money.
  • The lower-income home-buying public benefits from a greater willingness by lenders to risk making loans to that group.
  • The investors, whose money makes all of this work in the first place, benefit from the "full faith and credit" of the United States government; GNMA bonds are backed by the pool of mortgages, and even if massive defaults were to occur, the U.S. government would make good on all payments. GNMA bonds also feature higher returns than other U.S. government issued bonds.

GNMA bonds themselves are considered risk-free from the standpoint of total default, but they are subject to risks that all other bonds have, including interest rate risk. They also have the undesirable attribute of being callable every month, meaning that, unlike other bonds, all or part of a GNMA bond might suddenly "mature" next month, if all the homeowners decided to pay off or refinance their mortgages. This does not involve a risk of loss to the investor, but rather a premature payment of the principal, and now the investor has to go look for another investment for his money. This is called prepayment risk. As a practical matter, many institutional investors find it very inconvenient to own bonds which get small principal payments every month. For alternative meanings, see bond (a disambiguation page). ...


The GNMA said in its 2003 annual report that over its history, it had guaranteed securities on the mortgages for over 30 million homes totalling 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

This article or section does not cite its references or sources. ... This article is about the legal mechanism used to secure property in favor of a creditor. ... This article does not cite any references or sources. ... Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings. ... The controversy in relation to the United States mortgage government sponsored enterprises (GSEs) was triggered by accounting scandals, which urged the US government to consider tightening the control over them. ...

Companies

The United States Federal Government created the Federal National Mortgage Association (FNMA) (NYSE: FNM), commonly known as Fannie Mae, in 1938 to establish a secondary market for mortgages insured by the Federal Housing Administration (FHA). ... 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. ... The Federal Home Loan Mortgage Corporation (Freddie Mac) (NYSE: FRE) is a stockholder-owned, publicly-traded company chartered by the United States federal government in 1970 to purchase mortgages and related securities, and then issues securities and bonds in financial markets backed by those mortgages in secondary markets. ... Farmer Mac or the Federal Agricultural Mortgage Corporation (NYSE: AGM) is a stockholder-owned, publicly-traded company that was chartered by the United States federal government in 1988 to serve as a secondary market in agricultural loans such as mortgages for agricultural real estate and rural housing. ... 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. ...

External links

  • Ginnie Mae homepage

 
 

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