The Rise of Ginnie Mae
Though most people know the names Freddie Mac and Fannie Mae, fewer are familiar with the group known as Ginnie Mae. This is because Ginnie Mae, or the Government National Mortgage Association (GNMA) has for a long time taken a distant third place within the world of single-family mortgage loan securitization platforms. However, in the wake of the financial crisis, it’s been Ginnie Mae that has been largely boosting the recovery of the market, and now this group is poised to overcome Freddie Mac.
Back in 2007, Ginnie Mae’s book of business came in at $445 billion, far behind the approximately 1.5 trillion of Freddie Mac and the 2 trillion of Fannie Mae. Today, Ginnie Mae’s business has more than tripled, bringing it up to 1.5 trillion. At its continuing rate of growth, compared to the plateaued performance of Freddie Mac, it is projected to overtake the mortgage giant within the next year.
So, what is the secret of Ginnie’s success? What sets it apart from Fannie Mae and Freddie Mac is that it offers less of a risk for investors. Ginnie Mae securities feature only government loans, which are reliably insured with an explicit government backing. It is then able to guarantee investors that principal and interest payments will be made in a timely fashion, even if the borrower defaults. The company effectively puts itself into a fourth loss position, behind a borrower, a government insurance provider, and a servicer. By contrast, the other mortgage giants act as both insurers and securitizers, putting themselves in a second loss position that represents a greater risk.
In the time of uncertainty that followed the financial crisis, Ginnie Mae’s credit guarantee proved to be a powerful stabilizer for the mortgage market. As it rides the wave of its recent success, we can likely expect it to play a much bigger role in real estate from now on.
