Ginnie Mae: Connecting Housing Markets to Capital Markets

What Is the Government National Mortgage Association?

The Government National Mortgage Association (Ginnie Mae) is a federal government corporation and a key component of the U.S. housing finance system. Ginnie Mae guarantees the timely payment of principal and interest on mortgage-backed securities (MBSs) issued by approved lenders.

Ginnie Mae connects the United States housing market to capital markets, providing low-cost financing for federal housing programs through the Federal Housing Administration (FHA), Veterans Affairs (VA), the Department of Agriculture, and HUD's Public and Indian Housing. Ginnie Mae's backing by the federal government is instrumental in ensuring security for investors.

The Role and Functions of Ginnie Mae

The Government National Mortgage Association was established in 1968 as part of the U.S. Department of Housing and Urban Development (HUD) to promote affordable homeownership. Ginnie Mae does not create mortgages but guarantees them for single and multifamily homes. Since the government backs these loans, homeowners can secure lower interest rates, lowering their borrowing costs. Using a mortgage calculator is an excellent resource for budgeting these costs.

Ginnie Mae operates behind the mortgage market, neither issuing, selling, or buying pass-through mortgage-backed securities nor purchasing mortgage loans. Instead, approved private lenders originate eligible loans, pool them into securities, and issue mortgage-backed securities guaranteed by Ginnie Mae. Ginnie Mae's MBS portfolio balance as of fiscal year 2024 was $2.6 trillion.

Exploring Ginnie Mae Guarantees

Ginnie Mae guarantees the timely payment of principal and interest from approved issuers, such as mortgage bankers, savings and loans, and commercial banks, of qualifying loans. An investor in a GNMA security doesn't know who the underlying issuer of the mortgages is, but that the security is guaranteed by Ginnie Mae and backed by the full faith and credit of the U.S. government, just like the instruments issued by the U.S. Treasury.

The GNMA guarantee means that Investors with shares in Ginnie Mae funds never have to worry about the impact of late payments or mortgage defaults on their investment. When mortgage borrowers fail to make payments, Ginnie Mae covers them.

Ginnie Mae's efforts aid those traditionally underserved in the mortgage market. Most mortgages securitized as Ginnie Mae MBSs are insured by the Federal Housing Administration (FHA), which typically insures mortgages to first-time home buyers and low-income borrowers.

A Brief History of Ginnie Mae

After the Great Depression, when historically high unemployment rates led to unprecedented loan defaults, Congress passed the National Housing Act of 1934, a component of the New Deal, to help revive the U.S. housing market and protect lenders from mortgage default.

In 1968, thirty years after it was established, the Federal National Mortgage Association (FNMA), better known as Fannie Mae, split into two entities with two separate functions. Fannie Mae would purchase conventional loans and Ginnie Mae government-backed mortgages.

Fannie Mae was converted from a government-sponsored enterprise (GSE) to a publicly traded company. Ginnie Mae was established as a GSE and part of the Department of Housing and Urban Development, or HUD. Ginnie Mae is the only home-loan agency explicitly backed by the full faith and credit of the United States government.

Comparing Ginnie Mae, Fannie Mae, and Freddie Mac

Several organizations are similar to Ginnie Mae, notably Freddie Mac and Fannie Mae. Freddie Mac and Fannie Mae are government-sponsored enterprises (GSEs), federally chartered corporations owned by private shareholders. 

Where Ginnie Mae guarantees only securities that comprise mortgages guaranteed by federal agencies, such as the FHA and VA, its relatives may back securities whose mortgages are not insured by the government. Fannie Mae has a portfolio that invests in its own and other institutions' mortgage-backed securities. 

The GNMA is also ostensibly the only Mae or Mac backed by the full faith and credit of the federal government. In 2008, during the housing crisis, Fannie Mae and Freddie Mac were overseen by the government via a conservatorship of the Federal Housing Finance Committee. Some argue that the bailout erased Ginnie Mae's distinction as the only federal agency guaranteeing mortgage securities that enjoy government protection against failure.

The Bottom Line

The Government National Mortgage Association (GNMA), or Ginnie Mae, guarantees principal and interest payments on mortgage-backed securities issued by approved lenders. The GNMA is backed by the full faith and credit of the federal government, unlike Fannie Mae or Freddie Mac. Ginnie Mae was established in 1968 to promote affordable homeownership.