mortgage backed security giving the holder a proportional interest in a pool of residential mortgages, guaranteed by the Government National Mortgage Association (GNMA). Ginnie Mae securities are called passthroughs because the originating banks, mortgage bankers, and savings institutions pass all principal and interest, plus repayments, directly to the investor. There is no reinvestment of principal, as there is in mortgage backed bonds.
Ginnie Mae securities are collateralized by Department of Veterans Affairs guaranteed and Federal Housing Administration insured mortgages. There are two different types of Ginnie Mae securities available to investors. GNMA I certificates remit payments directly from the issuer to the investor on the 15th of each month. The holder gets a separate payment of principal and interest for each certificate issued. Payments on GNMA IIs are made on the 20th of each month. These securities, unlike GNMA I's, are backed by guaranteed loans from geographically dispersed multiple loan pools, and pay a coupon interest rate that can vary up to 1%. Originating financial institutions deduct a servicing fee of l /2 of 1% before remitting mortgage payments to Ginnie Mae. (The servicing fee on GNMA II pass-throughs can vary from l /2 of 1% to 1.5%.) Ginnie Mae securities are called modified passthrough securities because the coupon rate (also called the production rate) of the securities is reduced by the issuer's servicing fee. Because Ginnie Mae securities are backed by the full faith and credit of the U.S. government, these issues have a wide secondary market. Futures contracts in Ginnie Maes have been traded on the Chicago Mercantile Exchange since 1972.
security backed by a pool of mortgages and guaranteed by the Government National Mortgage Association (GNMA), which passes through to investors the interest and principal payments of homeowners. Homeowners make their mortgage payments to the bank or savings and loan that originated their mortgage. After deducting a 3/8 to ½% service charge, the bank forwards the mortgage payments to the pass-through buyers, who may be institutional investors or individuals.
security, backed by a pool of mortgages and guaranteed by the government national mortgage association (Ginnie Mae), which passes through to investors the interest and principal payments of homeowners. Homeowners make their mortgage payments to the bank or savings and loan that originated their mortgage. After deducting a service charge (usually 1/2%), the bank forwards the mortgage payments to the pass-through buyers, who may be institutional investors or individuals. Ginnie Mae guarantees that investors will receive timely principal and interest payments even if homeowners do not make mortgage payments on time.
Ginnie Maes are available in three types:
- GNMA 1 securities are single issuer pools whose certificates pay principal and interest separately.
- GNMA 2 securities represent multiple-issuer pools (called jumbos) that are longer and more geographically diverse than single issuer pools, with certificate holders receiving aggregate principal and interest payments from a central paying agent.
- GNMA Midgets, a term dealers use that is not an official GNMA designation, are certificates backed by fifteen-year fixed rate mortgages.
The introduction of Ginnie Mae pass-throughs has benefited the home mortgage market, since more capital has become available for lending. Investors, who are able to receive high, government-guaranteed interest payments, have also benefited. For investors, however, the rate of principal repayment on a Ginnie Mae pass-through is uncertain. If interest rates fall, principal will be repaid faster, since homeowners will refinance their mortgages. If rates rise, principal will be repaid more slowly, since homeowners will hold onto the underlying mortgages.
