Category: 

What are Ginnie Mae Funds?

Article Details
  • Written By: A. Leverkuhn
  • Edited By: Andrew Jones
  • Last Modified Date: 17 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
Helium is the only element that was discovered in space before it was found on Earth.  more...

December 10 ,  1948 :  The UN adopted the Universal Declaration on Human Rights.  more...

Ginnie Mae funds are funds in the United States financial market that allow investors to participate in bonds from a government owned agency that administers mortgage-backed securities. These funds are popular in 401(k) setups and other collective or institutional investment schemes. Ginnie Mae funds are generally part of the bond market.

The Government National Mortgage Association, popularly shortened to “Ginnie Mae,” or GNMA, is a part of the U.S. Department of Housing and Urban Development (HUD). Ginnie Mae acts as a broker in mortgage debt. Investors can buy into Ginnie Mae funds and get returns that are made from interest on mortgages.

Many finance professionals refer to Ginnie Mae funds as Ginnie Mae bond funds because the majority of funds represent bonds based on mortgage debt. Those who are enthusiastic about investing in Ginnie Mae funds point to some solid returns based on the operations of GNMA, which is essentially a middleman for collecting and administrating mortgage debt. For example, Ginnie Mae will in some cases make up the balance if a homeowner defaults on a mortgage.

Ad

Experts make a critical distinction between Ginnie Mae and two other agencies, Fannie Mae and Freddie Mac. The Federal National Mortgage Association or Fannie Mae and the Federal Home Loan Mortgage Corporation, or Freddie Mac, also work with mortgage debt, insuring private lending. The difference professionals mention is that Ginnie Mae is government owned and operated, while Fannie Mae and Freddie Mac are merely government sponsored.

As a result of the various policies included in Ginnie Mae, some investors think of GNMA funds as a kind of “pass through” system where GNMA simply guarantees returns on debt. For example, with some mortgage-backed securities, there are specific risks related to prepayment on mortgages. When mortgage holders begin to prepay their mortgages, the actual returns to investors can become nebulous. Ginnie Mae funds have some specific characteristics that help to deal with this kind of confusion over yield.

One drawback for GNMA funds is that there is a fairly heavy minimum contribution in order for investors to participate in the funds. The practical outcome of this limitation is that participation in Ginnie Mae funds is generally limited to institutional investors. These would typically include hedge funds, the investment arms of commercial banking institutions, or collective investments such as pension plans.

Ad

You might also Like

Recommended

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email