Ginnie Mae also known as ‘Government National Mortgage Association’ was created and introduced to the public back in 1968 with the intent of promoting home ownership. By guaranteeing already processed mortgages, Ginnie Mae provides less risk to lenders to originate new loans, thereby increasing credit in the U.S. market. With the goal of Ginnie Mae being the promotion of homeownership, many borrowers who would have otherwise not been able to obtain loans may qualify because of Ginnie Mae and other related secondary mortgage market organizations.
The goal of Ginnie Mae is to promote affordable housing by purchasing loans to free a lender’s working capital. The organization is not a publicly traded company, but rather a corporation owned on a federal level.
Influence & History
In 1970 Ginnie Mae was declared the first major corporation to provide and pledge MBS products, which until this very day continues to deliver mortgage funds for homebuyers. Due to the organizations track record and history of keeping money secured, in the case where a borrower does not deliver on payments in a timely manner, Ginnie Mae takes charge and will cover late and missed payments. The organization has proven to be vital in assisting with the nations housing market, by continuing to keep it booming and stable. As a result of such guarantees, many investors and homebuyers trust and invest their money in Ginnie Mae.
Ginnie Mae vs Fannie Mae
The major difference between Ginnie Mae and Fannie Mae is that Ginnie Mae does not purchase securities; rather, Ginnie Mae guarantees newly processed mortgages. By guaranteeing mortgages, the entity provides security even in periods of relative slow economic growth or recession to investors who may otherwise not approve mortgages to the consumer market.
A primary example of how the organization works is best explained in a common scenario where the lenders give out monthly payments which were initially given out by the homeowners to an agent. The agent then delivers the payments to the security holders. A percentage of the interest payment is then kept in the possession of Ginnie Mae as a guaranteed fee, while the original lenders receive a percentage as a result of providing services.