Ginnie Mae, or the Government National Mortgage Association (GNMA), is a federal corporation that offers guarantees to help to boost the market’s interest in securities backed by federally insured loans. These include FHA, USDA, and VA loans.
Definition of Ginnie Mae and Examples
Ginnie Mae is a federal corporation that backs securities made up of mortgages (known more commonly as mortgage-backed securities) from multiple federally insured loan programs. Established in 1968, the organization’s goal is twofold: opening up the availability of mortgage loans to a wider variety of people and increasing the confidence that banks have when they choose to originate a mortgage loan.
The mortgage lending markets Ginnie Mae participates in might be a new subject for many people, especially when you learn for the first time that banks or credit unions may sell your mortgage on the secondary market to another entity. However, Ginnie Mae’s influence has expanded access to mortgage lending, creating opportunities for those who wouldn’t otherwise qualify for conventional loan requirements.
Ginnie Mae-backed securities focus on loans with non-conventional terms and interest rates designed to make homeownership affordable. These mortgages can serve first-time homebuyers, military members, veterans, and low-income borrowers. These loans are insured by the government agencies whose names they carry: USDA, FHA, and VA, for example.
- Alternate name: Government National Mortgage Association
- Acronym: GNMA (individually pronouncing these letters create, approximately, “Ginnie Mae”)
An example of a Ginnie Mae mortgage-backed security (MBS) is the Ginnie Mae MBS I, which has a minimum combined value of $1 million. The mortgages in the MBS are fixed-rate single-family loans that have the same interest rate.
How Does Ginnie Mae Work?
Ginnie Mae strategically offers a guarantee that helps make USDA, FHA, and VA loans more attractive to bankers, thus promoting those loans’ availability. To understand how GNMA works, though, you have to know a few things about how housing loan markets work.
Primary lenders such as banks or mortgage lenders used to be less interested in offering loans to riskier clients, such as first-time homebuyers or homebuyers whose credit is lower than their ideal range. If all lenders could do was offer you the loan and hope you keep paying it, they’d understandably want to reduce risk by offering fewer of these mortgage loans.
However, in the mortgage loan market, investors can buy and sell loans. A secondary lender might offer to buy the loan from the primary lender. The secondary lender would then receive the payments and, most likely, make back their investment and then some through the interest payments from the homeowner.
Secondary markets can also create an MBS. This is essentially a bond made up of a bundle of loans that people can invest in. When homeowners make their payments, the MBS’ investors earn a return.
Ginnie Mae doesn’t loan money directly or buy loans on the secondary market—or even create MBSs. Instead, it adds a guarantee to MBSs that include federally insured loans.
Basically, Ginnie Mae says, “If you buy shares in this mortgage-backed security, you’ll receive the returns you expect even if a borrower has a late payment or missed payments.” This guarantee is considered to be backed by the “full faith and credit” of the U.S. government, much like ultra-safe Treasury bonds investments.
Ginnie Mae’s guarantee has a ripple effect through the market, boosting confidence along the way: Because this guarantee makes these securities a reliable investment, they are very popular with investors. Secondary markets that create mortgage-backed securities know they can sell this particular type of MBS, as they know there will be demand for their reliable, guaranteed returns. Therefore, primary banks that issue these loans know they have a stable market to sell them, which makes issuing the loans a good deal.
This one relatively small intervention in the market boosts an entire industry’s confidence in homebuyers who might otherwise not be given access to loans. Ginnie Mae’s impact includes widely expanding who can get a mortgage loan and become a homeowner.
Ginnie Mae vs. Fannie Mae and Freddie Mac
It’s important to know the differences between government corporation Ginnie Mae and government-sponsored enterprises Fannie Mae and Freddie Mac, as the organizations serve different purposes.
|Ginnie Mae||Fannie Mae and Freddie Mac|
|Created in 1968 to promote confidence in non-conventional loans like FHA, VA, and USDA loans||Secondary-market home mortgage companies created in 1938 (Fannie) and 1970 (Freddie), technically private corporations that are sponsored by the government|
|Exists to support the desirability and market viability of the FHA, VA, and USDA loans, expanding access to homeownership||Fannie Mae purchases home loans from larger banks but can pick other loans, while Freddie Mac usually works with smaller banks and smaller loans|
|Doesn’t buy loans, just guarantees mortgage-backed securities||Set regulations and guidelines for mortgages|
What Ginnie Mae Means for Homebuyers
Ginnie Mae’s work has made homeownership possible for a wider set of people than would otherwise be offered mortgage loans. As a result, applicants who might not qualify for a conventional loan can qualify for a government-insured loan to accomplish their goal of owning a home.
- The Government National Mortgage Association (“Ginnie Mae”) is a federal corporation within HUD.
- Ginnie Mae places a guarantee on certain securities known as mortgage-backed securities (MBSs). The particular investments that MBSs guarantee are usually bonds backed by bundles of federally insured mortgage loans.
- The loans Ginnie Mae focuses on supporting include FHA, VA, and USDA loans—all of which tend to offer favorable terms to first-time homebuyers, military members, veterans, and low-income households.
Ginnie Mae. "About Us: Funding Government Lending." Accessed Aug 27, 2021.
Department of Housing and Urban Development. "Government National Mortgage Association (GNMA)." Accessed Aug. 27, 2021.
Freddie Mac. "Federal Home Loan Mortgage Corporation Act," Page 1. Accessed Aug. 27, 2021.
Fannie Mae. "Proud of Our Past, and Confident in Our Future." Accessed Aug. 27, 2021.