Ginnie Mae Pass Through
Ginnie Mae may sound like the name of your eccentric aunt who lives in a school bus she converted into a mobile home and travels from commune to commune selling hand-woven yoga mats. But it's actually the nickname for a government agency, with the official, more imposing name of Government National Mortgage Association.
Part of the Department of Housing and Urban Development, Ginnie Mae's stated mission is to promote home ownership. It does this by backing housing loans that might otherwise get turned down by banks.
The process involves buying mortgages originated by government agencies that help targeted groups (like the Federal Housing Administration and the Rural Housing Service) and bundling them together into securities it issues to public markets. These are fundamentally mortgage-backed securities, but unlike the kind that contributed to the financial crisis of 2007/2008, the ones issued through Ginnie Mae have the backing of the government.
Ginnie Mae guarentees payment of the securities, whether the homeowners whose mortgages make up the securities end up paying their loans back or not. These pass-throughs, as they are called, are considered safe investments, which pay higher rates than treasuries. Because the Ginnie Mae bonds are backed by the full faith and credit of the government, they offer lower risk than other mortgage-backed securities.
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Finance: What are Bonds?393 Views
Finance a la shmoop what is a bond? well a bond is your word your promise your [Women shake hands]
handshake your John Hancock on a contracted piece of paper your mortgage
your credit card debt yeah their bonds to your "I swear I'm not a deadbeat"
declaration... that's your bond right well bonds come [Man lying on a sofa]
in many complex flavors and compositions simply put bonds are loans aka debt you
borrow money or you promise or you you bond that
you'll pay it back when you borrow money the amount you borrow is called the
principal you pay rent on that amount borrowed and that rent is called [rent appears at bank]
interest to the entity loaning you the money that interest is called yield
thank you very much for the yield like if the lender rents you a grand for a
year and you pay them a thousand 80 bucks at year-end paying back the
principal and then the rent on the money while the lender will have had a yield [Yield of lender appears]
of 8% on the grand that they loaned you so that's a bond you borrow money you
pay it back and if you don't the person who loaned you the dough well they [Person stamped with property of shmoop bank]
generally own your tuchus and yeah you know what Shakespeare said about bonds
yeah that's what he said so if you don't really know what you're doing don't do
it...