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- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
What Is Ginnie Mae?
Ginnie Mae is a federal government corporation, which guarantees the timely payment of principal and interest on mortgage-backed securities that are issued by approved lenders.
Ginnie Mae is the common name for the Government National Mortgage Association and is abbreviated to GNMA.
Mortgage lenders are allowed to obtain a better price for MBSs in the capital markets with the assurance of Ginnie Mae.
What Is The Function Of The Government National Mortgage Association?
As part of the U.S Department of Housing and Urban Development (HUD), in 1968 the Government National Mortgage Association was established with the intention of promoting affordable homeownership.
Just like Fannie Mae or Freddie Mac, Ginnie Mae doesn’t create or advance mortgages it only guarantees them for single and multifamily homes.
Ginnie Mae loans are backed by the government, hence homeowners can secure lower interest rates, and as a result, lower their borrowing costs.
Ginnie Mae created and guaranteed mortgage-backed securities and has continued to support them since the 1970s. In 1983 the securities were first sold on the international market on the Luxembourg Stock Exchange. Ginnie Mae is a few steps behind the mortgage market.
Eligible loans are originated by the approved private lenders, who pool them into securities, and then the mortgage-backed securities are issued by the guarantee of Ginnie Mae.
As per the website of the association, the MBS portfolio balance of Ginnie Mae’s is $2.1 trillion.
Thus the timely payment of principal and interest from approved issuers like mortgage bankers, savings and loans, and commercial banks of qualifying loans are guaranteed by Ginnie Mae.
A Ginnie Mae security investor is unaware of know who the underlying issuer of the mortgages is, they merely know that the security is guaranteed by Ginnie Mae.
This shows that Ginnie Mae is backed by the full faith and credit of the U.S. government, similar to the instruments issued by the U.S.Treasury.
This shows that investors with shares in Ginnie Mae funds would never have to worry about the impact of late payments or mortgage defaults on their investment when it is guaranteed by Ginnie Mae. Ginnie Mae steps in to honor the missed payments when mortgage borrowers fail to make a payment.
Ginnie Mae aims to expand the pool of homeowners by aiding lending to those who otherwise will not stand a chance in the mortgage market.
The Federal Housing Administration (FHA) insures most of the mortgages are securitized as Ginnie Mae MBSs, Most FHA insures mortgages to first-time home buyers and low-income borrowers.
Securities made up of mortgages insured by the Veterans Administration (VA) and the Rural Housing Service (RHS) are the other frequent beneficiaries of the Ginnie Mae guarantee.
How Did Ginnie Mae Originate?
The Federal National Mortgage Association (FNMA), also known as Fannie Mae, had grown so large that, three-decade after its establishment, in 1968 it was split into two separate entities having two separate functions.
The conventional loans would be purchased by Fannie Mae, and the government-backed mortgages like FHA and VA loans would be purchased by Ginnie Mae.
The roots of Ginnie Mae can be traced back to the Great Depression when an unprecedented wave of loan defaults as a result of very high unemployment rates.
And Congress passed the National Housing Act of 1934 when the rise in home foreclosures further depressed the housing values and the nation’s overall economy, a new deal, was created by the Federal Housing Administration (FHA) to help the U.S. housing market and protect lenders from a mortgage default.
Because Ginnie Mae is a national mortgage loan insurance program, it gives bigger incentives to banks, building and loan associations, and other institutions and aids in making loans easier for all Americans who dream of having a home.
After the split, Fannie Mae was converted to a publicly-traded company from a government-sponsored enterprise (GSE).
And Ginnie Mae got established as a GSE and as part of the Department of Housing and Urban Development (HUD), it continues to be so today.
Now, the only home-loan agency which is fully backed by the complete faith and credit of the United States government is Ginnie Mae.
As a government guaranteeing agency, there are a few things that Ginnie Mae doesn’t do. Ginnie Mae doesn’t originate any loans itself and neither does it provide any financing for mortgage issuers.
The Government National Mortgage Association also doesn’t give any insurance to lenders against any credit risks that result from borrowers.
Moreover, no standards for loan issuers like underwriting or credit standards are being set by Ginnie Mae.
Conclusion
Ginnie Mae is a federal government corporation, which guarantees the timely payment of principal and interest on mortgage-backed securities that are issued by approved lenders.
The purpose of the agency is to guarantee affordable home loans for underserved consumers in the mortgage market.
The process is – private lenders who are approved originate eligible loans, pool them into securities, and supply mortgage-backed securities that are guaranteed by Ginnie Mae.
