Key takeaways
- Ginnie Mae (the Government National Mortgage Association) plays a crucial, if behind-the-scenes role, in government-insured/guaranteed mortgages like FHA and VA loans.
- A federally owned entity, Ginnie Mae packages loans into mortgage-backed securities that are then traded on the secondary market, providing lenders with the capital to issue new loans.
- By guaranteeing these securities, Ginnie Mae reduces lender and investor risk, ensuring these mortgages for low- and middle-income borrowers continue.
If you used a government-backed loan to purchase your home, you might want to thank Ginnie Mae for playing a part in making that loan possible.
No, Ginnie Mae does not actually originate mortgages. In fact, you probably won’t ever deal with this federal corporation directly. But it does important work behind the lending scenes, playing an essential role in making FHA loans, VA loans and other mortgage programs possible. Ginnie Mae ensures that money can keep flowing and lenders can keep lending – all of which adds up to making sure that prospective homebuyers can keep buying.
What is Ginnie Mae?
Ginnie Mae, officially known as the Government National Mortgage Association, is directly owned by the federal government. The organization’s primary mission is to make home ownership a more affordable reality for low- to moderate-income buyers, and it makes that happen by creating liquidity for FHA loans, VA loans, USDA loans and the Office of Public and Indian Housing loans on the secondary mortgage market.
Ginnie Mae plays a huge role in the housing market: 22 million households have mortgages that Ginnie Mae has guaranteed over the past decade. The organization packages loans into mortgage-backed securities (MBS) that investors trade on the secondary market, and Ginnie Mae’s total portfolio of those securities adds up to more than $2.5 trillion, as of January 2024.
What is the history of Ginnie Mae?
Ginnie Mae came into being in 1968 when the Housing and Development Act split Fannie Mae into two separate corporations: One remained Fannie Mae (more on the difference between the two below) and the other became Ginnie Mae. It operates under the aegis of the U.S. Department of Housing and Urban Development (HUD).
Ginnie Mae was founded to help lenders sell mortgages to investors — a common practice today, but a novel idea back then — instead of keeping these loans within their own portfolios. By doing so, it allowed lenders to make ready money off their mortgages, offering a stream of capital they could use to issue new loans. Two years after its founding, Ginnie Mae created the first-ever mortgage-backed security. What is a mortgage-backed security? Mortgage-backed securities (MBS) are collections of mortgages that are pooled together and bought and sold as investments — not unlike a bond mutual fund. Income-seeking investors often buy them, since MBS pay interest from the mortgage-holders’ monthly payments. These MBS trade on the secondary mortgage market, and the securities’ prices fluctuate with prevailing interest rates.
What does Ginnie Mae do?
Ginnie Mae packages different types of government-backed mortgages into pools that are then traded as mortgage-backed securities. So, a lender doesn’t have to keep all the mortgages it originates on its books; instead, Ginnie Mae helps facilitate a market for all that debt.
Being able to sell its mortgages not only provides a lender with cash, it reduces the risk in originating them (since, if the borrower defaults, it’s the loan-buyer’s problem, not the lender’s). Investors can make money on those mortgage-backed securities while prospective homebuyers get the benefit of more lenders being willing to loan more money. In 2023, for example, Ginnie Mae helped pool more than 620,000 first-time homebuyers’ loans into mortgage-backed securities.
620,000+
The number of first-time homebuyers loans Ginnie Mae helped pool into mortgage-backed securities in 2023
Source: Government National Mortgage Association
Ginnie Mae guarantees
Ginnie Mae guarantees that every month on the 15th or 20th – depending on the type of security – investors will receive payment from their mortgage-backed security. Ginnie Mae’s mortgage-backed securities are backed by the full faith and credit of the U.S. government, similar to Treasury bonds, meaning they are one of the safest investments anyone can make.
Ginnie Mae vs. Fannie Mae and Freddie Mac
It’s easy to get Ginnie Mae mixed up with Fannie Mae (after all, they have the same last name) and Freddie Mac. While all three organizations play vital roles in the mortgage market, they have some unique differences:
- Ownership: While Fannie Mae and Freddie Mac were created by Congress, the government does not own them. Instead, they are considered government-sponsored enterprises (technically, they’re private), while Ginnie Mae is fully owned and operated by the federal government.
- Types of loans: Fannie Mae and Freddie Mac make a market in conventional loans — mortgages originated and backed by private lenders — while Ginnie Mae solely focuses on government-agency backed loans.
- Buying loans vs. guaranteeing their performance: Fannie Mae and Freddie Mac purchase loans from lenders and create MBS out of them, like Ginnie. However, only Ginnie Mae guarantees that the principal and interest payments of the mortgage-backed securities will be made on time.
- Setting lending standards: Fannie Mae and Freddie Mac both have criteria for the mortgages they’ll buy, which include credit scores, debt-to-income ratios and loan-to-value ratios; they also set loan size limits. Lenders (and borrowers) must meet these guidelines in order for their mortgages to be considered purchasable conforming loans. Ginnie Mae, on the other hand, does not issue any type of requirements, leaving those duties up to government entities like the FHA, VA and USDA.
- Creating mortgage programs: Fannie Mae and Freddie Mac do have loan products that they offer through approved lenders. In contrast, Ginnie Mae does not originate or invest in mortgage loans directly; it is strictly a guarantor.
How does Ginnie Mae promote affordable homeownership?
Ginnie Mae’s contribution to affordable homeownership is an indirect one. But it’s an important one.
Government-backed loans – the kind that Ginnie Mae focuses on – tend to have more relaxed requirements that benefit buyers with less-than-perfect credit and/or low incomes that make it difficult to make large down payments. For example, FHA loans allow a borrower with a credit score in the 500s to put down only 3.5 percent or 10 percent, in contrast to the conventional 20 percent for borrowers with credit scores in the upper 600s.
That sort of financing carries more risk for lenders who want to feel confident that borrowers will repay the large amounts they owe. If lenders had to carry all these loans on their books, they wouldn’t be able to originate new ones because they would be saddled with somewhat risky debt. In fact, they might hesitate to finance such borrowers at all.
Ginnie Mae reassures lenders by making a market — that is, being willing to buy — these mortgages. Then, when it packages all these loans into securities, it guarantees that the income stream (from the mortgages’ principal and interest payments) will be made on time each month — which reassures investors and encourages them to buy the MBS.
In this way, the market for FHA, VA and other government-backed loans remains robust, and the money keeps flowing, from investors to lenders to borrowers and back again. So, for example, when an FHA-approved lender originates five FHA loans, they can then sell those loans – giving them the capital to originate five more. The cycle continues, and more borrowers can get the money to pursue their dream of homeownership.
Ginnie Mae FAQ
Ginnie Mae bonds, aka GNMA bonds, are mortgage-backed securities that Ginnie Mae originates. It packages government-backed loans into pools – typically with a minimum value somewhere between $250,000 and $1 million. Investors buy these bonds, issued in $25,000 minimum denominations. Ginnie Mae guarantees on-time payments of principal and interest, making its MBS risk level on a par with those of U.S. Treasuries.
Ginnie Mae helps provide liquidity for government-backed loans that tend to be good for those with less-than-perfect credit or low incomes, who might not qualify for conventional mortgages. Without Ginnie Mae to buy and back them, it would be very challenging for FHA loans, VA loans, USDA loans and loans for HUD’s Public and Indian Housing to exist.
Ginnie Mae and the FHA (Federal Housing Administration) both are agencies that operate within the U.S. Department of Housing and Urban Development (HUD). But they are two separate entities that serve different roles. The FHA sets lending standards, insures a particular type of mortgage program (FHA loans) and collects mortgage insurance to pay a lender if a borrower defaults on the loan. Ginnie Mae is not involved in anything directly related to individual borrowers or lender policy. Instead, it pools together those FHA loans – along with other types of government-insured loans – into securities that keep money flowing through the market.
