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Ginnie Mae (GNMA): What Is The Government National Mortgage Association?

Kevin Graham7-minute read

May 21, 2021


If you don’t work in the industry, the grease that keeps the wheels of the mortgage and housing markets turning might be foreign to you. Still, if you’re looking to buy a home or refinance your mortgage, it can be helpful to understand some of the big players. If you’re looking to get a loan directly backed by the federal government, Ginnie Mae is an agency you should know.

In this article, we’ll go over what Ginnie Mae is, how it works and the role it plays in the markets in backing government loans for homes. Finally, we’ll compare Ginnie Mae to two of the biggest backers of conventional loans.

What Is Ginnie Mae?

Ginnie Mae, or the Government National Mortgage Association (GNMA), is a government agency that guarantees timely payments on mortgage-backed securities (MBS). In doing this, Ginnie Mae works with other government agencies to make affordable housing widely available through mortgage loans.

Formed as a result of a split with Fannie Mae, GNMA is overseen by the U.S. Department of Housing and Urban Development (HUD). Its role is to provide liquidity in the market for home loans that are directly guaranteed by the U.S. government.

Specifically, Ginnie Mae guarantees mortgages that are designed to open up homeownership to a wider array of people. You may be able to qualify for a government-backed mortgage even if you’ve got a few blemishes on your credit or if you have a shorter history.

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How Does Ginnie Mae Work?

Ginnie Mae is one of three major bond issuers that underlies the funding for most consumers in the real estate market. By guaranteeing principal and interest payments on mortgages that are part of its MBS portfolio (more on that in a minute), it provides investor protection against a borrower not being able to make their payment and defaulting on the terms of the loan.

At the same time, the liquidity being provided for mortgage lenders helps keep funding for government-backed loans more affordable than it would otherwise be if banks and other mortgage originators were forced to hold the loans for significant periods of time.

While Ginnie Mae backs many mortgage loans, you can’t get a mortgage from GNMA itself. Rather, mortgage originators like Rocket Mortgage® collect applications, underwrite and close loans. Later on, the mortgage is sold to GNMA in order to free up capital for the lender to make additional loans. The system supports the smooth functioning of the housing market.

What Are Ginnie Mae Bonds?

The primary way that Ginnie Mae provides the liquidity necessary to support the free flow of capital in the housing market is by packaging the mortgages it buys into GNMA bonds. Also known simply as GNMAs, these bonds begin with the individual mortgages bought by Ginnie Mae. Here’s a quick overview of the process:

A mortgage bond or MBS is made up of many loans that have been grouped together based on having similar characteristics. For example, a possible GNMA bond might consist of 1,000 FHA loans with median FICO® Scores of 620 or better with down payments or equity amounts of at least 3.5%. Ginnie Mae puts this bond together and makes it available to investors in the bond market.

Bond payments backed by underlying mortgage payments are historically considered pretty safe because if there’s one thing you’re going to prioritize payment on, it’s probably your house. However, these bonds come with the extra assurance that GNMA will make the investor whole in the event the borrower defaults. This can be a huge attraction.

Of course, any investor should be concerned with the rate of return they’re going to get on their money. Like any bonds, GNMAs are impacted by rising and falling interest rates. When interest rates are rising, it’s because conditions in the market are such that it requires a higher yield to attract a bond investor.

Spurred on by COVID-19, the Federal Reserve has stepped in and purchased tens of billions of dollars’ worth of MBS, including GNMAs. Given the higher demand, bond yields and rates have been lower than they otherwise would be. This has had the effect of creating a favorable interest rate environment for consumers. At the same time, investor returns are lower.

Mortgage Loans Secured By Ginnie Mae

Ginnie Mae secures a variety of mortgages that have the direct backing of the federal government. Let’s run through them.

FHA Loans

The first loans backed by Ginnie Mae are those underwritten to the requirements of the Federal Housing Administration (FHA). FHA loans are aimed at borrowers with less-than-perfect credit or shorter histories. Although you can get an FHA loan with a 10% down payment if your median FICO® Score is 500 or better, most lenders, including Rocket Mortgage®, require a median score of 580 with a down payment of 3.5% or more.

It’s also important to note that you may qualify for increased flexibility around debt-to-income ratio (DTI) with a score of 620 or better. Higher credit scores can also mean lower rates if everything else is held equal.

One thing clients should know about FHA loans is if you make the minimum down payment, there’s monthly mortgage insurance for the life of the loan to go along with an upfront mortgage insurance premium.

VA Loans

GNMA also secures VA loans made through the home loan program from the Department of Veterans Affairs. This program is intended for eligible active-duty servicemembers, reservists, National Guard personnel, veterans and surviving spouses receiving dependency and indemnity compensation (DIC).

In addition to having no required down payment, the other key selling points of this loan option include highly competitive rates and the ability to qualify with a slightly higher DTI than you could on most other loans. Additionally, you can take out 100% of your equity and convert it to cash if you have a high enough FICO® Score. Rocket Mortgage® requires a median 680.

Although the VA doesn’t specify a minimum median score necessary to qualify for a standard VA loan, lenders can put their own policies in place. We require a median score of at least 620. Instead of mortgage insurance, there’s a VA funding, or guarantee, fee that’s a percentage of the loan amount which depends on factors like your down payment, service status and whether you’ve used a VA loan in the past.

As a benefit to servicemembers, interest rates are often lower on VA loans for similar terms.

RHS Loans

Ginnie Mae also backs loans made by the U.S. Development of Agriculture (USDA) through its Rural Housing Service (RHS) program. Intended to provide an affordable mortgage for those living in rural areas, USDA loans have several advantages.

The main benefits of the program are that there’s no required down payment. Additionally, guarantee, or funding, fees on USDA loans are cheaper than the monthly and upfront mortgage insurance payments for FHA loans.

In order to qualify for this loan option, you have to live in a qualifying rural area. Additionally, you and everyone in your household can’t make more than 115% of the area median income.

At this time, Rocket Mortgage® doesn’t offer USDA loans.

Mortgages For Native Americans

HUD’s office of Native American Programs offers low down payment options on low-interest home loans through its Section 184 Loan Program. The minimum down payment is 2.25% if your loan is over $50,000 and 1.25% under $50,000. The interest rates are also based on the market rather than your credit score.

These loans are manually underwritten so there may be some flexibility around credit depending on your situation. Additionally, the loan features a 1% guarantee fee that can be paid upfront or built into the loan rather than a mortgage insurance requirement.

At this time, Rocket Mortgage® doesn’t originate Section 184 mortgages.

Ginnie Mae And Government-Sponsored Enterprises

GNMA bonds that mortgages originated by the federal government. Conventional loans are backed by a couple of big government-sponsored enterprises (GSEs). Although these are private entities and not directly agencies of the federal government, the loans to have an implied government guarantee because the GSEs entered government conservatorship after the 2008 housing crisis.

Let’s do some comparison of the practices of these agencies.

Ginnie Mae Vs. Fannie Mae And Freddie Mac

Ginnie Mae does have some similarities to Fannie Mae and Freddie Mac. They all buy mortgages to package into an MBS, which is sold on the bond market. This provides liquidity in the mortgage market and helps keep housing affordable. Both Fannie Mae and Freddie Mac were also started with government charters, so they came out of similar places with the same mission.

The difference comes in the types of mortgages they buy. Fannie Mae and Freddie Mac back mortgages based on conventional loans. These come with higher credit scores of at least 620. Because credit scores are higher and borrowers are often better qualified, and interest rates on these loans and the bond yields investors get for backing them may be lower.

From the perspective of someone looking to get a mortgage, conventional mortgages offer down payments as low as 3%, although you can avoid mortgage insurance entirely with a 20% down payment. The even better news is that you can often request mortgage insurance come off once you reach 20% equity.

Besides the types of loans they buy, the biggest difference is that Ginnie Mae is a government agency while the other two are just GSEs whose guarantees have some level of government backing while they’re under federal supervision.

There have been stops and starts in efforts to move the companies toward exiting conservatorship of the Federal Housing Finance Agency (FHFA). For now, the status quo remains.

The Bottom Line

Ginnie Mae buys government-backed mortgages to provide fresh capital for the mortgage industry to make more loans and support the mission of affordable housing. After buying the mortgages, loans with similar characteristics are packaged into MBSs and sold on the bond market to investors. GNMA promises to back the bonds even in the event of loan default.

Ginnie Mae guarantees FHA loans, VA loans, USDA loans and a loan program to help facilitate Native American homeownership. Fannie Mae and Freddie Mac are GSEs which have government backing, but they’re not government entities themselves. They buy conventional loans.

Now that you have the lowdown, maybe you’re ready to get started. Apply online with Rocket Mortgage®.

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Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage, he freelanced for various newspapers in the Metro Detroit area.