Ginnie Mae and Fannie Mae are both key players in the home mortgage business. The two organizations help make home loans available and affordable by increasing lenders’ access to funds through the secondary mortgage market. Beyond that, however, the two organizations have key differences, including the fact that Ginnie Mae is owned by the federal government while Fannie Mae is, at least nominally, owned by holders of its publicly traded shares.
For help with home mortgages and other financial issues, consider working with a financial advisor.
Ginnie Mae and Fannie Mae Basics
Fannie Mae got its start 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 purchased loans from the private commercial banks and other lenders that originated 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 via the secondary mortgage market. Fannie Mae and Freddie Mac today are privately owned — but, due to a government bailout during the 2008 housing crisis, are under control of the Federal Housing Finance Agency. The two government-sponsored enterprises, or GSEs, operate similarly to each other.
Ginnie Mae came about in 1968. It helps provide access to the secondary mortgage market specifically for government loan programs. These include government-insured FHA loans, VA loans and USDA loans.
Ginnie Mae and Fannie Mae Differences
One big difference 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 its sibling, Freddie Mac, are private corporations owned by shareholders. Investors can buy shares of Freddie Mac and Fannie Mae on the over-the-counter market.
Another difference is that Fannie Mae and Freddie Mac strongly influence the availability of home loans by issuing guidelines for the types of loans they will accept for securitization. These guidelines cover a host of borrower and loan characteristics, including loan size, credit score, debt-to-income ratio and loan-to-value ratio. Loans that meet the two GSEs’ guidelines are called conforming loans, and get better interest rates and terms than non-conforming loans.
Ginnie Mae, on the other hand, issues no guidelines. The federal agencies, such as FHA, that guarantee the loans it securitizes issue guidelines. But Ginnie Mae doesn’t have the direct influence on loan underwriting standards that the two GSEs do.
The GSEs actually buy loans from private lenders. Then they assemble similar loans into packages and, most of the time, sell them as securities to investors who receive the interest and principal payments. Sometimes the GSEs keep the loans and collect payments themselves.
Ginnie Mae, however, does not buy loans. Like the GSEs, it guarantees timely payment of principal and interest on mortgage-backed securities consisting of loans from the government agencies that back loans. But Ginnie Mae stops short of actually buying loans.
As part of that difference, Ginnie Mae does not actually issue any mortgage-backed securities. Instead, it relies on private financial institutions to assemble government agency-backed loans into packages, issue them and market them to investors. The GSEs perform these functions themselves.
A final significant difference between Ginnie Mae and Fannie Mae is that Ginnie Mae has the explicit support of the federal government. This means that if Ginnie Mae has financial difficulties, Washington will step in to prop it up. The GSEs don’t have explicit guarantees of support from the federal government. However, investors still assume the government won’t let the GSEs collapse, an expectation that was borne out when Washington bailed out the GSEs after they were approaching bankruptcy due to losses in 2008.
Ginnie Mae and Fannie Mae are major players in the secondary mortgage market, both are key to 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 its sibling corporation Freddie Mac, is a private corporation that buys loans from private lenders, assembles 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 your overall financial strategy. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Mortgage-backed bonds guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac offer reliable income streams to investors. 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 credit: ©iStock.com/xijian, ©iStock.com/wutwhanfoto, ©iStock.com/LaylaBird