Government National Mortgage Association

The Government National Mortgage Association (GNMA), or Ginnie Mae, is a government-owned corporation of the United States Federal Government within the Department of Housing and Urban Development (HUD). It was founded in 1968 and works to expand affordable housing by guaranteeing housing loans (mortgages) thereby lowering financing costs such as interest rates for those loans. It does that through guaranteeing to investors the on-time payment of mortgage-backed securities (MBS) even if homeowners default on the underlying mortgages and the homes are foreclosed upon.

Ginnie Mae guarantees only securities backed by single-family and multifamily loans insured by government agencies, including the Federal Housing Administration, Department of Veterans Affairs, the Department of Housing and Urban Development’s Office of Public and Indian Housing, and the Department of Agriculture’s Rural Development. Ginnie Mae neither originates nor purchases mortgage loans nor buys, sells or issues securities. The credit risk on the mortgage collateral underlying its mortgage-backed securities primarily resides with other insuring government agencies.

Ginnie Mae is similar to Fannie Mae (Federal National Mortgage Association) and Freddie Macs" (GSEs), which are federally chartered corporations privately owned by shareholders. Today, Ginnie Mae securities are the only mortgage-backed securities that are backed by the " full faith and credit" guaranty of the United States Federal Government, although some have argued that Fannie Mae and Freddie Mac.

History

In 1934, during the depths of the Great Depression, the United States Congress responded to the crisis by passing the National Housing Act of 1934, which established the Federal Housing Administration (FHA). One of the principal objectives of the FHA was to increase the flow of capital to the housing markets by insuring private lenders against the risk of mortgage default. FHA also was tasked with chartering and regulating a national mortgage association that would buy and sell FHA-insured mortgages. In 1938, Congress amended the act to create the Federal National Mortgage Association, more commonly known as "Fannie Mae", to help mortgage lenders gain further access to capital for mortgage loans.

The provisions of the act changed gradually over the years. It was not until 1968, however, in response to a perceived need to further broaden the capital base available for mortgages, that the housing finance system began to resemble its current form. As part of the Housing and Urban Development Act of 1968, Congress partitioned Fannie Mae into two entities:
* Fannie Mae, which was originally restricted to purchasing Federal Housing Administration and Veterans Administration (VA) mortgages (Fannie Mae was permitted to deal in conventional mortgages in 1970), and
* Ginnie Mae, formerly the Government National Mortgage Association, which originally only provided insurance for bonds issued by FHA and VA mortgages in special affordable housing programs.

In 1970, Ginnie Mae became the first organization to create and guarantee MBS products and has continued to provide mortgage funds for homebuyers ever since.

Today, Ginnie Mae securities are the only mortgage-backed securities that are backed by the " full faith and credit" guaranty of the United States government, although some have argued that Fannie Mae and Freddie Mac

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