The Role of Ginnie Mae in Real Estate Financing

Instructor: Ian Lord

Ian has an MBA and is a real estate investor, former health professions educator, and Air Force veteran.

This lesson covers the history, structure, and role in real estate financing of Ginnie Mae, or the Government National Mortgage Association. We will discuss how Ginnie Mae affects investors and homebuyers.

Ginnie Mae Definition

Another little old lady named Mae? Who is Ginnie Mae and what does she do in real estate?

Ginnie Mae is actually a common name for the Government National Mortgage Association (GNMA). It was created in the Housing and Urban Development Act of 1968. The act split GNMA off from Fannie Mae. Both of these businesses involve mortgage backed securities for sale to investors. The act changed Fannie Mae's role to focus on conventional lending while Ginnie Mae would guarantee US government backed lending programs.

Ginnie Mae Structure

Ginnie Mae is a special type of business called a government-owned enterprise. Unlike a privately or publicly traded business, Ginnie Mae is a company exclusively owned by the US federal government. It does not buy or service loans. It's business structure focuses on guaranteeing the servicing of the loans.

The Role of Ginnie Mae

Ginnie Mae is a guarantor of residential mortgage backed securities. Because it is fully owned by the federal government, it carries an explicit guarantee of principal and interest payments. Ginnie Mae guarantees mortgage backed securities containing loans originated under the following government mortgage programs:

  • Department of Veterans Affairs
  • Federal Housing Administration
  • US Department of Agriculture Rural Development
  • Department of Housing and Urban Development's Office of Public and Indian Housing

The Ginnie Mae Process
Ginnie Mae Process

Lenders such as banks originate loans under these programs (and the loans must meet GNMA standards). The lenders then package the loans together as mortgage backed securities. GNMA guarantees the loans, but does not service them. The principal and interest that is repaid by borrowers flows through the mortgage backed security to the investors. A lender may hold some of these securities and can use the principal plus interest to help make more loans. If the mortgage holders don't make the payments, the government will make investors whole. This guarantee is explicitly said to have the full faith and credit of the US government.

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