Both Ginnie Mae and Fannie Mae are major players in the home mortgage business. Both organizations help make home loans available and affordable by increasing lenders’ access to funds through the secondary mortgage market. Beyond this, however, there are significant differences between the two organizations, including the fact that Guinea Mae is owned by the federal government, while Fannie Mae is, at least nominally, owned by the holders of its publicly traded shares. is in.
For help with home mortgages and other financial issues, consider working with a financial advisor.
Genie Mae and Fannie Mae Basics
Fannie Mae started in 1938 as the Federal National Mortgage Association. Its purpose was to help ordinary Americans become homeowners by increasing the funds available to mortgage lenders. To accomplish this, Fannie Mae bought loans from private commercial banks and other lenders that generated them, packaged the loans into mortgage-backed securities and sold them to investors.
In 1970, the Federal Home Loan Mortgage Corporation, or Freddie Mac, was created to provide competition to Fannie Mae and help smaller lending institutions sell loans through the secondary mortgage market. Fannie Mae and Freddie Mac are today privately owned – but, due to a government bailout during the 2008 housing crisis, under the control of the Federal Housing Finance Agency. The two government-sponsored enterprises, or GSEs, perform similar functions to each other.
Ginnie Mae arrived in 1968. This specifically helps to provide access to the secondary mortgage market for government loan programs. These include government-insured FHA loans, VA loans and USDA loans.
Differences Between Genie Mae and Fannie Mae
One of the major differences between Ginnie Mae and Fannie Mae is that Ginnie Mae is owned by the government. It is part of the Department of Housing and Urban Development. Fannie Mae and her brother, Freddie Mac, are private corporations owned by shareholders. Investors can buy shares of Freddie Mac and Fannie Mae in the over-the-counter market.
Another difference is that Fannie Mae and Freddie Mac strongly influenced home loan availability by issuing guidelines for the types of loans to be accepted for securitization. These guidelines cover a number of borrower and loan characteristics, including loan size, credit score, loan-to-income ratio and loan-to-value ratio. Loans that meet the guidelines of the two GSEs are called conforming loans, and fetch better interest rates and terms than non-conforming loans.
Ginnie Mae, on the other hand, doesn’t issue any guidelines. Federal agencies, such as the FHA, that guarantee loans, issue guidelines. But Ginnie Mae doesn’t have a direct impact on the credit underwriting standards that the two GSEs do.
GSEs actually buy loans from private lenders. They then collect similar loans into packages and, most of the time, sell them as securities to investors who receive interest and principal payments. Sometimes GSEs keep loans and collect the payments themselves.
Ginnie Mae, however, does not buy the loan. Like the GSE, it guarantees timely payment of principal and interest on mortgage-backed securities that include loans from government agencies that back loans. But Ginnie Mae actually stops buying loans.
As part of that distinction, Ginnie Mae doesn’t actually issue any mortgage-backed securities. Instead, it is up to private financial institutions to assemble government agency-backed loans into packages, issue them and sell them to investors. GSEs do these tasks themselves.
One last important difference between Ginnie Mae and Fannie Mae is that Ginnie Mae has the explicit support of the federal government. This means that if Guinea May has financial difficulties, Washington will take steps to address it. The GSE does not have an explicit guarantee of support from the federal government. However, investors still believe that the government will not allow the GSE to collapse, a hope that followed Washington ousted the GSE in 2008 after it neared bankruptcy due to losses.
Ginnie Mae and Fannie Mae are major players in the secondary mortgage market, both of which are important for providing liquidity to lenders and keeping home loans available and affordable. However, Ginnie Mae is a government agency that guarantees securities backed by loans issued under other government agency programs such as the VA and FHA. Fannie Mae, along with her sibling corporation Freddie Mac, is a private corporation that buys loans from private lenders, collects them into mortgage-backed securities and sells them to investors.
- Consider talking to a financial advisor before taking out a mortgage, to make sure the transaction fits into your overall financial strategy. Finding a qualified financial advisor should not be difficult. SmartAsset’s free tool matches you with three financial advisors who serve your area, and you can interview your advisor matches to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
- Mortgage-backed bonds guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac provide investors with a reliable income stream. You can buy these bonds from any securities broker. Alternatively, a government bond mutual fund or exchange-traded fund will typically own mortgage-backed securities from at least one of these organizations.
Photo Credits: ©iStock.com/xijian, ©iStock.com/wutwhanfoto, ©iStock.com/LaylaBird
Mark Henriques Mark Henriques has reported on personal finance, investing, retirement, entrepreneurship and other topics for over 30 years. His freelance byline has appeared on CNBC.com and in major publications such as The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance, and more. Mark has written books including “Not Just a Living: The Complete Guide to Creating a Business That Gives You a Life”. His preferred reporting is the one that helps common people to increase their personal wealth and life satisfaction. A graduate of the University of Texas Journalism Program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic musical duo, whitewater kayaking, jungle backpacking and competing in triathlons.