While Fannie and Freddie are still reeling from helping bail out the nation’s banks, their cousin Ginnie Mae had a record year (its fiscal year ended on September 30), showing $1.18 billion in net income — double last year’s income of $541.5 million.
According to the government agency (unlike F&F, Ginnie Mae has always been government owned), it helped finance nearly 60 percent of all U.S. home purchases over the past year. So for the first time it’s passed Freddie Mac to become the country’s second-largest funder of home loans.
Ginnie Mae is different than Fannie and Freddie; its business is essentially insuring government (e.g., FHA, VA) mortgages. An excellent explanation comes from a 2008 article on SFGate.com:
A borrower goes to a bank and asks for a loan. If he qualifies, he might be offered a loan guaranteed by the FHA. (The FHA was created, long before subprime loans became widely available, to help borrowers who couldn’t get conventional home loans because they had low credit scores or limited resources.)
A bank or other institution bundles a group of FHA mortgages and sells a bond backed by mortgages in the pool to investors.
Ginnie Mae insures the bond, for a fee. But it doesn’t own any bonds itself.
As time goes on, “the bank collects mortgage payments from borrowers and passes payments to Ginnie Mae, which passes them through to investors,” says Ginnie Mae spokeswoman Terry Carr.
If a borrower defaults, the bank can foreclose and collect from FHA or VA. But the bank is responsible for making the pass-through payments whether or not the borrower pays.
“If the bank can’t make all or part of the pass-through payment, Ginnie Mae makes sure that bondholders continue to get their promised payments,” Carr adds.
Individuals can’t buy Ginnie Mae stock, but most large mutual fund companies have Ginnie Mae funds.