The Government National Mortgage Association (Ginnie Mae) is a wholly owned federal corporation within the U.S. Department of [Housing and Urban Development (HUD) [1]. It was created in 1968 through an amendment to Title III of the National Housing Act. The President of Ginnie Mae is appointed by the President of the United States, and serves as a key member of the Secretary of Housing and Urban Development's principal staff.
Ginnie Mae is credited with creating the Mortgage-Backed Security (MBS) [2] program in 1968. The purpose of the mortgage-backed security program is to attract new sources of capital for residential mortgage loans by increasing liquidity in the secondary mortgage market. Through the program, Ginnie Mae guarantees the timely payment of principal and interest on securities backed by pools of mortgages issued by private mortgage institutions. A Ginnie Mae Mortgage-Backed Security is the only MBS guaranteed by the full faith and credit of the United States Government.
Ginnie Mae can make this guarantee because mortgages in the underlying security are insured or guaranteed by the Federal Housing Administration (FHA), the Rural Housing Service (RHS), (formerly Farmers Home Administration), the Department of Veterans Affairs (VA), or HUD’s Office of Public and Indian Housing (PIH). The original MBS concept, as well as new variations developed in the past four decades, remains Ginnie Mae’s primary activity.
Ginnie Mae does not assemble or issue securities: instead, it assesses a small fee on banks and other mortgage lenders to evaluate, and then guarantee the pool of mortgages to be sold by this private entity. The fee collected by Ginnie Mae is, if necessary, used as an advance against MBS pools which experience defaults. When homeowners do not make a mortgage payment, Ginnie Mae uses these fees to fulfill its guaranty of timely payment of principal and interest payment to the MBS security holders. Should the mortgage-holder lose the home to foreclosure, Ginnie Mae’s full-faith and credit guarantee comes into play because all of the underlying mortgages are insured or guaranteed by FHA, VA, RHS and others.
