Government National Mortgage Association

• Author: Jeffrey Lehman, Shirelle Phelps

Page 119

The Government National Mortgage Association (GNMA), also known as Ginnie Mae, is a corporation wholly owned by the federal government. Created by the Housing and Urban Development Act of 1968, 825 Stat. 491, GNMA is designed to support the federal government's housing programs by establishing a secondary market for the sale and purchase of residential mortgages.

During the late 1960s, the federal government expressed concern that available credit for low-income housing was insufficient to meet the growing demand. In response GNMA began issuing certificates to obtain additional funds for government-backed, low-income mortgages. GNMA certificates entitle their holders to receive a portion of the income derived from a residential mortgage pool approved by the government.

A residential mortgage pool consists of a group of mortgages that are issued by private lenders, including commercial banks and savings and loan institutions. The mortgages in this group have similar terms and interest rates. If the pool is approved by GNMA, it is placed into a trust, from which it is sold to investors by SECURITIES dealers. Some pools include more than one thousand residential mortgages.

The revenue generated by the sale of these pools helps make additional credit available for low-income residential mortgages insured by government agencies such as the Federal Housing Administration (FHA), the VETERANS ADMINISTRATION (VA), and the Farmers Home Administration. The HOUSING AND URBAN DEVELOPMENT DEPARTMENT, which is responsible for administering GNMA, oversees the entire program.

GNMA mortgage pools are considered stable investments by securities dealers and investors alike. The timely payment of principal and interest on each mortgage is guaranteed by GNMA and the FULL FAITH AND CREDIT of the federal government. GNMA enjoys unlimited authority to borrow funds from the U.S. Treasury in order to make good on this guarantee.

By developing a stable and viable secondary market for government-backed residential mortgages, GNMA has originated more than $1 trillion in securities trading. The revenue generated through this secondary market has enabled more than 19 million low-income families to purchase homes and provided the U.S. Treasury with annual receipts sometimes exceeding $400 million.

In 1994 President BILL CLINTON outlined the National Homeowners Strategy, which spurred GNMA to undertake an intense and...