Ginnie Mae – Who is it and why do we care? Can you say “$9 Trillion of Mortgage Backed Securities”?

Well, maybe not without taking a little antacid and two Advil first…

Who is it? In 1968, Congress established the Government National Mortgage Association (Ginnie Mae)- A government-owned corporation within the Department of Housing and Urban Development (HUD). At this time, mortgages were usually held by local/regional community/commercial banks and not sold in groups to get the money back to reloan to others but held by the institution which only had so much money to lend and that was it. This reduced the number of loans available and restrained the availability of affordable housing.

Ginnie Mae solved this problem (i.e. liquidity-limited dollars for loan and variable interest rates per region) that revolutionized the American housing industry in 1970 by pioneering the issuance of mortgage-backed securities (MBS).

What Ginnie Mae does is guarantee investors the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans — mainly loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Other guarantors or issuers of loans eligible as collateral for Ginnie Mae MBS include the Department of Agriculture’s Rural Housing Service (RHS) and the Department of Housing and Urban Development’s Office of Public and Indian Housing (PIH).

Today, Ginnie Mae securities are the only mortgage-backed securities that offer the full faith and credit guaranty of the United States government (i.e., You – the taxpayer).

Why do we care? As of right now, it insures about $9 Trillion in Government issued Mortgage Backed Securities…And almost 10% of them are delinquent by more than one month…

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