Meet Fannie Mae and Ginnie Mae
If I’m being honest, every time I’d heard someone say Fannie Mae and Ginnie Mae, I pictured two women in their 80’s who sit in their front yards, drink their iced tea and talk about their neighbors. That was until I entered the mortgage industry. Fannie Mae and Ginnie Mae are not two feisty older women—they are government programs; Fannie Mae is a Government Sponsored Entity (GSE) along with Freddie Mac (who we will meet another time) while Ginnie Mae is a government agency.
Let’s first address my biggest question and I feel like it’s an obvious one; why in the world would someone name a government agency after their grandmothers? It turns out that is not the case at all. Fannie Mae’s official name is Federal National Mortgage Association (FNMA), lending itself to the name, “Fannie Mae”. Similarly, the Government National Mortgage Association (GNMA) mimics “Ginnie Mae” quite nicely. Today, I figure I will divide and conquer; join me as I consider what each agency does.
Fannie Mae (FNMA) was put into place to assist the housing market and make mortgages available to more borrowers. These borrowers included those who, historically, didn’t have a high enough income to qualify for a mortgage. Don’t get confused, it does not provide mortgages for borrowers but instead purchases the mortgages through the secondary mortgage market. By purchasing these mortgages from the originator (lender who you received your mortgage through), they are allowing these lenders the financial freedom to fund additional mortgages because their money isn’t all tied up in existing mortgages. This in turn, helps more Americans become homeowners.
Ginnie Mae (GNMA) was also put into place to help encourage growth in the housing market. Per ginniemae.gov, “Ginnie Mae focuses on providing the guaranty backed by the full faith and credit of the United states for the timely payment of principal and interest on mortgage backed securities secured by pools of government home loans.” The creation of Ginnie Mae allowed for multiple loans to be pooled together and used as collateral (back up) for a security (a tradeable financial asset) that, once lumped together, could be sold in the secondary market. Ginnie Mae guarantees payment to the investor who purchases the security, made up of the pooled mortgages. This means, Ginnie Mae guarantees that the investors will receive payment and the investor doesn’t have to worry about not getting their money should the mortgage default. It also assist the lender because now they have additional funds, from selling the mortgage backed security, to fund more mortgages and help more people become homeowners.
In short, these two organizations have opened the doors for many homeowners today and allowed us to achieve our dreams. So maybe in a way they are a bit like 80-year-old women but instead of the gossiping kind, think of them more like well-meaning grandmothers that want to help us achieve our dreams!
Source:
https://www.ginniemae.gov/about_us/who_we_are/pages/our_history.aspx