Tuesday, September 15, 2009

the Creation of Ginnie Mae (GNMA)

Efforts by congress to make the federal government‘s budget "look better" resulted in the splitting of Fannie Mae into two agencies in 1968. Fannie Mae itself became a private, shareholder-owned corporation devoted to secondary-market trading. at the same time, those loan programs requiring government subsidies or direct government credit were handed over to a new corporation set up within the Department of Housing and Urban Development, known as the Government National Mortgage Association (GNMA) or "Ginnie Mae." this federal agency pursues a two-part program to aid the nation‘s mortgage market. Less than one portion of its program Ginnie Mae purchases mortgages to financing housing for low-income families at below-market interest rates. These "assistance mortgages" are eventually sold to FNMA or to private investors at current market prices.
Far more importer for the secondary market, however, is GNMA‘S mortgage-backed-securities program. Beginning in 1970, Ginnie Mae agreed to guarantee principal and interest payments on securities issued by private mortgage institutions if those securities were backed by pools of government-guaranteed mortgages. These so-called pass-thoughts are popular with savings and loans associations, pension funds, commercial banks, and even individual investors as safe, readily marketable securities with attractive rates of return. they are issued mainly by mortgage bankers, but about a quarter of all pass-through issued each year come from savings and loan associations, mutual savings banks, and commercial banks, the issuing institutions can raise cash to make new loans by selling the pass-troughs and still continue to earn servicing income on the mortgage in the pool. By year-end 1979 there were more than 800 active issuers of GNMA pass-through securities and over 33,000 pools of mortgages. Today more than 90 percent of all newly originated FHA-VA mortgages on single-family dwellings are either in mortgage pools supporting pass-troughs or are sold to Fannie Mae.

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