by Amy Lillard
Fannie Mae and Freddie Mac are the two government-sponsored enterprises (GSE) in a specific area of mortgage lending. The goal of these private companies is to help expand home ownership across the country. In our continuing series, we've looked at these two companies, their operations, scandals, and status.
The Government National Mortgage Association (GNMA, or Ginnie Mae) is another U.S. government-owned corporation within the Department of Housing and Urban Development (HUD). It was formed in 1968 as part of the federal act that made Fannie Mae a private corporation. Ginnie Mae works within the secondary mortgage market like Fannie Mae and Freddie Mac, selling loans to provide more mortgage funds, more liquidity, and increased stability.
Unlike its big siblings, however, Ginnie Mae provides mortgage-backed securities that are guaranteed by the government.
The most common misconception of mortgage products and investments offered by the main GSEs is the belief that the government backs all transactions. While the government did help form these organizations, provide them a public mandate, and offer special mortgage benefits, they are not actually guaranteed. Ginnie Mae securities are, backed by federally insured or guaranteed loans issued by the Federal Housing Administration, Department of Veterans Affairs, Rural Housing Service, and Office of Public and Indian Housing.
Ginnie Mae offers several types of mortgage-backed securities. Ginnie Mae serves a significant role in increasing homeownership, particularly with lower-income borrowers, driving mortgage rates down due to increased lender funds and competition, and offering lenders greater incentive to loan to populations they may not have considered before. Investors particularly like Ginnie Mae, as all bonds are backed from the "full faith and credit" of the U.S. government and receive higher returns than other bonds.
Ginnie Mae's 2003 annual report noted that over its history the organization had guaranteed securities on the mortgages for over 30 million homes totalling over $2 trillion.
The SLM Corporation (Sallie Mae) is the largest college student loan company in the U.S. The company primarily provides federally guaranteed student loans through the Federal Family Education Loan Program, and offers financial aid resources for all involved in the college payment process.
Sallie Mae is included in the GSE family because it was formed in 1972 as such. As of 2004, the company is completely private and without government charter, meaning all government ties have been severed. The company's loans are still federally insured, and they have expanded its products to debt management services and business and technical support for colleges, universities and loan guarantors. In April of 2007, news broke that Sallie Mae was bought. When the deal is complete, the company will be owned by J.C. Flowers investor group, Friedman Fleishcher and Low private-equity firm, Bank of America and JP Morgan Chase.
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