2.12.3. Ginnie Mae
There is another important player in the mortgage-backed securities world—the Government National Mortgage Association, more commonly known as Ginnie Mae. Unlike Freddie Mac and Fannie Mae, Ginnie Mae is not a GSE; instead, it is a public government agency. It does not buy or sell mortgages or issue mortgage-backed securities. Ginnie Mae securities are often issued by private companies, such as banks. Ginnie Mae guarantees the timely payment of interest and principal of certain mortgage-backed securities, and it has the full faith and credit of the U.S. federal government to do so. So if an exam question describes an investor who buys a Ginnie Mae mortgage-backed security, remember that the investor is buying a security with interest and principal payments that are backed by the full faith and credit of the U.S. government. Despite their differences, mortgage-backed securities issued by Fannie Mae and Freddie Mac and those backed by Ginnie Mae are all referred to as “agency securities.”
Why does the government have enterprises and agencies that facilitate the MBS market? The underlying philosophy is that mortgage-backed securities increase the ability of the average person to purchase a home, and home ownership is thought to be good for the nation. Here’s how it works. Mortgage-backed securities allow lending banks to sell off the debt they hold. Once the new mortgage-backed securities are sold on the secondary market to investors, the banks that granted the original mortgages are able to remove them from their balance sheets, decreasing their debt. These lending banks are then able to issue new mortgages at lower interest rates. They then sell off these new mortgages by issuing more MBSs and can issue more new loans. This process allows more people to