Jan 3, 2012
Like it’s homely siblings, Fannie Mae and Freddie Mac, Ginnie Mae is central to our housing economy. It facilitates affordable housing a reality for millions of low-and moderate-income American households across America by channeling global capital into U.S. housing markets. The Ginnie Mae guaranty allows mortgage lenders to obtain a better price for their mortgage loans in the secondary market, with whose fresh cash the lenders then use to make new mortgage loans to more homeowners. Ginnie Mae does not buy or sell loans or issue mortgage backed securities (MBS), thus its balance sheet doesn’t hedge or lever derivatives or carry long term debt.
Full Faith and Credit
Ginnie Mae guarantees investors the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans — mainly loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA), and to a lesser extent the Department of Agriculture’s Rural Housing Service (RHS) and the Department of Housing and Urban Development’s Office of Public and Indian Housing (PIH). Ginnie Mae securities are the only MBS to carry the full faith and credit guaranty of the United States government.
What Are Mortgage-Backed Securities?
Mortgage-backed securities (MBS) are pools of mortgages used as collateral for the issuance of securities in the secondary market. MBS are commonly referred to as “pass-through” certificates because the principal and interest of the underlying loans is “passed through” to investors. The interest rate of the security is lower than the interest rate of the underlying loan to allow for payment of servicing and guaranty fees. Regardless of whether the mortgage payment is made, investors in Ginnie Mae MBS will receive full and timely payment of principal as well as interest. Ginnie Mae MBS are created when eligible mortgage loans (those insured or guaranteed by FHA, the VA, RHS or PIH) are pooled by approved issuers and securitized. Ginnie Mae MBS investors receive a pro rata share of the resulting cash flows (net of servicing and guaranty fees).
Ginnie Mae I:
MBS requires all mortgages in a pool to be the same type (e.g. single-family). Each mortgage must be, and must remain, insured or guaranteed by FHA, VA, RHS or PIH. In addition, the mortgage interest rates must all be the same and the mortgages must be issued by the same issuer. The minimum pool size is $1 million; payments on Ginnie Mae I MBS have a stated 14-day delay (payment is made on the 15th day of each month). Ginnie Mae II MBS allows multiple-issuer pools to be assembled, which in turn allows for larger and more geographically dispersed pools as well as the securitization of smaller portfolios.
Ginnie Mae II:
A wider range of coupons is permitted in a Ginnie Mae II MBS pool, and issuers are permitted to take greater servicing fees — ranging from 25 to 75 basis points. The minimum pool size is $250,000 for multi-lender pools and $1 million for single-lender pools. Ginnie Mae II MBS have an additional five-day payment delay because issuer payments are consolidated by a central paying agent (payment is made on the 20th day of each month).
REMICS
Real Estate Mortgage Investment Conduits (REMICs) direct principal and interest payments from underlying mortgage-backed securities to classes with different principal balances, interest rates, average lives, prepayment characteristics and final maturities. Unlike traditional pass-throughs, the principal and interest payments in REMICs are not passed through to investors pro rata; instead, they are divided into varying payment streams to create classes with different expected maturities, different levels of seniority or subordination or other differing characteristics. The assets underlying REMIC securities can be either other MBS or whole mortgage loans. REMICs allow issuers to create securities with short, intermediate and long-term maturities — flexibility that allows issuers to expand the MBS market to fit the needs of a variety of investors.
Ginnie Mae Platinum Securities
Ginnie Mae Platinum Securities provide investors with greater operating efficiency, allowing holders of multiple MBS to combine them into a single platinum certificate. Ginnie Mae Platinum Securities can be used in structured finance transactions, repurchased transactions as well as general trading.
