GNMA refers to a United States HUD Department of Housing and Urban Development based government corporation. This agency is different from its cousin Freddie Mac as Ginnie Mae is not a private corporation. Rather it is an actual U.S. government agency.
The roles of GNMA are two-fold. They are to guarantee there is sufficient liquidity for mortgages which are government insured. This comprises all mortgages provided by the FHA Federal Housing Administration, the RHA Rural Housing Administration, and the VA Veterans Administration. The other responsibility of Ginnie Mae is to attract the capital of investors into the marketplace for such loans. This allows for the various issuers to provide still more loans in the future. The majority of those mortgages which Ginnie Mae securitizes and sells are in fact MBS mortgage-backed securities which are guaranteed by the FHA. These are usually mortgages which are offered to lower income borrowers and first time home buyers.
GNMA operates in a fairly straightforward manner. The governmental agency purchases home mortgages off of the financial institutions which make such loans. Then it pools them together into $1 million and higher collections. Ginnie Mae has choices at this point. Some of these pools it holds on to and then directly sells them to investors outright. Others it sells off to financial institutions and mortgage bankers who then sell them on to investors themselves.
After this, either the mortgage banker or GNMA itself will collect mortgage payments off of the pools’ mortgage homeowners. For those investors who choose to invest in a GNMA, they typically receive monthly payments which come with at least a portion of the principal (that remains outstanding) as well as an interest payment. The other method has investors just obtaining interest payments. In this case, the principal only comes back to the investors as the mortgage reaches maturity.
Sometimes investors call such bonds from the agency Ginnie Mae pass through securities. This is because the requisite mortgage payments will go through, or pass through, a bank. The bank then collects its fee in advance of passing on what remains of the payment to the appropriate investors. These payments amount to greater returns than comparable U.S. Treasury notes provide investors.
GNMA’s also possess other advantages. They are guaranteed not to default and fail by the United States’ government and its full faith and credit. They also prove to be extremely liquid. This is partly because they may be easily resold via the active secondary market at any time.
GNMA instruments come with a hefty minimum investment dollar requirement. This amounts to typically $25,000. Once this minimum threshold is met, the size may be increased in only single dollar increments to whatever level is desired. There are opportunities to purchase such Ginnie Mae’s which can sell for under the standard $25,000 when they are occasionally offered at face value discounts via the secondary market. This could occur in cases where the applicable interest rates prove to be lower than more current instrument issues’ rates or also as the remaining principals have become reduced significantly.
There are also mutual funds which buy into Ginnie Mae’s. The cost of shares in such funds are considerably lower than the $25,000 minimum of the instruments themselves. In cases like this, investment trusts or outright Ginnie Mae funds will purchase the bonds directly from the government agency or secondary market. They will then provide their own shares, which represent stakes in such instruments, to the investing public.
It is not only separate investors who purchase the Ginnie Mae’s. A great range of different organizations and companies purchase them. Several examples of these other buyers abound. They are credit unions, retirement pension funds, commercial banks, real estate investment trusts, corporations, and insurance companies. There are also a great variety of different institution kinds that actually issue such Ginnie Mae’s. Among these are banks, mortgage companies, and credit unions.