Government National Mortgage Association

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Government National Mortgage Association

The Government National Mortgage Association (GNMA), also known as Ginnie Mae, is a corporation wholly owned by the federal government. Created by the Housing and Urban Development Act of 1968, 825 Stat. 491, GNMA is designed to support the federal government's housing programs by establishing a secondary market for the sale and purchase of residential mortgages.

During the late 1960s, the federal government expressed concern that available credit for low-income housing was insufficient to meet the growing demand. In response GNMA began issuing certificates to obtain additional funds for government-backed, low-income mortgages. GNMA certificates entitle their holders to receive a portion of the income derived from a residential mortgage pool approved by the government.

A residential mortgage pool consists of a group of mortgages that are issued by private lenders, including commercial banks and savings and loan institutions. The mortgages in this group have similar terms and interest rates. If the pool is approved by GNMA, it is placed into a trust, from which it is sold to investors by Securities dealers. Some pools include more than one thousand residential mortgages.

The revenue generated by the sale of these pools helps make additional credit available for low-income residential mortgages insured by government agencies such as the Federal Housing Administration (FHA), the veterans administration (VA), and the Farmers Home Administration. The Housing and Urban Development Department, which is responsible for administering GNMA, oversees the entire program.

GNMA mortgage pools are considered stable investments by securities dealers and investors alike. The timely payment of principal and interest on each mortgage is guaranteed by GNMA and the full faith and credit of the federal government. GNMA enjoys unlimited authority to borrow funds from the U.S. Treasury in order to make good on this guarantee.

By developing a stable and viable secondary market for government-backed residential mortgages, GNMA has originated more than $1 trillion in securities trading. The revenue generated through this secondary market has enabled more than 19 million low-income families to purchase homes and provided the U.S. Treasury with annual receipts sometimes exceeding $400 million.

In 1994 President bill clinton outlined the National Homeowners Strategy, which spurred GNMA to undertake an intense and sweeping review of its practices and programs. In addition, GNMA has been working to satisfy internal mandates that require it to enhance its customer service, improve its relations with other businesses, and better market its securities. GNMA has incorporated the latest technology and automation to achieve these goals and has hired consultants to market its residential mortgage pools.

GNMA continues to streamline its documentation procedures and make efforts to eliminate paperwork, such as accepting electronic confirmation of insurance rather than relying on paper insurance certificates. It has begun an ambitious program to increase home ownership by minority families. Since its inception in 1968, GNMA has given more than 27 million families access to affordable mortgage costs. On November 20, 2002, GNMA announced that it had overseen the origination of $2 trillion in mortgage-backed securities.

Further readings

Benson, John D. 1991. "Ending the Turf Wars: Support for a CFTC/SEC Consolidation." Villanova Law Review 36.

Ginnie Mae. Available online at <www.ginniemae.gov/index.asp> (accessed July 26, 2003).

Hadaway, Beverly L., and Paula C. Murray. 1986. "Mortgage Backed Securities: An Investigation of Legal and Financial Issues." Journal of Corporation Law 11.

Malloy, Robin P. 1986. "The Secondary Mortgage Market: A Catalyst for Change in Real Estate Transactions." Southwestern Law Journal 39.

Cross-references

Corporations; Credit; Mortgage.

References in periodicals archive ?
Listings of mortgage-backed securities issued by GNMA and FNMA are carried daily in the Wall Street Journal (www.wsj.com) and other major newspapers.
We approximated this rate, however, and showed that changes in the ratio of GNMA and Treasury yields, combined with other financial-market information, allow decision makers and policymakers to gauge (albeit imperfectly) the impact of monetary policy actions on the incentive to invest.
In the first iteration, the threshold refinancing price at which point it is optimal to prepay is set equal to the prepayment price plus refunding costs (assumed to be 104% of par for GNMA mortgages).
Table 4 Mutual Fund Return Indexes Fund Group Index Stock funds Russell 2000 Growth Income Russell 1000 Global equity Morgan Stanley Capital International Index (World) Bond funds Government Lehman Brothers Composite Treasury Index Corporate Merrill Lynch Corporate Master GNMA Merrill Lynch GNMA Index High yield Merrill Lynch High Yield Bond Index Municipal Standard and Poor's Municipal Index (One Million)
Two legislative changes--one in 1954 requiring FNMA to buy mortgages on privately owned low-income housing projects subsidized by the government, and the other in 1967 treating the purchases as a federal budget outlay--resulted in splitting FNMA into two agencies in 1968 and changing its role.(16) GNMA was created to take responsibility for the low-income mortgages, and FNMA went off-budget as a federally chartered corporation with agency status in the capital markets.
In this case, the after-tax yield of the GNMA bonds would be 6.46% (9.5% x (1 - 0.28 - 0.04)).
Those concerned about the plight of real estate and principal risk, can still participate solely in CMO residuals where the mortgage certificate collateral is guaranteed by government or government-sponsored agencies (GNMA, FNMA, or FHLMC) reducing this variable to its lowest possible level.
The first Government National Mortgage Association (GNMA, or "Ginnie Mae") pass-throughs appeared in 1970.
It is cleared to operated in 43 states and 3 territories and is an approved issuer under the Government National Mortgage Associate (GNMA) HECM Mortgage-Backed Securities (HMBS) programme.
Grasso began his career as a mortgage loan servicer at PFC Corporation, a multifamily mortgage lender/ GNMA issuer, in 1991.
Purchase by the Federal Reserve of Ginnie Mae (GNMA) multifamily construction loan securities at the prevailing rate of GNMA mortgage securities for the FHA Section 221(d)4 program.