Definition of Ginnie Mae Pass Through
A Ginnie Mae Pass Through is a type of mortgage-backed security in which investors receive monthly principal and interest payments derived from a pool of federally insured or guaranteed mortgage loans. These securities are backed by the full faith and credit of the U.S. government, providing an added level of security for investors. Ginnie Mae pass-through certificates are attractive for those seeking high yield and secure investments despite the inherent risks associated with changes in mortgage prepayment rates and interest rates.
Examples
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Individual Investor: An individual seeking a low-risk investment with relatively high returns might invest in Ginnie Mae pass-through certificates, adding them to their retirement portfolio.
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Institutional Investor: A pension fund may include Ginnie Mae pass-through securities in its investment strategy to ensure stable and secure returns, which helps in managing the fund’s obligation to its beneficiaries.
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Real Estate Investment Trust (REIT): A REIT might invest in Ginnie Mae pass-through securities as part of its diversified real estate investment portfolio, leveraging the stability of government-backed mortgages.
Frequently Asked Questions (FAQs)
What is the Government National Mortgage Association (Ginnie Mae)?
Ginnie Mae, or the Government National Mortgage Association, is a U.S. government corporation within the Department of Housing and Urban Development (HUD). It was established to expand homeownership by ensuring liquidity, stability, and affordability in the residential housing market.
How does a Ginnie Mae Pass Through work?
Ginnie Mae purchases groups or ‘pools’ of mortgages, packages them as securities, and then sells these securities to investors. The monthly payments from the mortgage borrowers are “passed through” to investors, typically resulting in higher yields.
Are Ginnie Mae Pass Through securities guaranteed?
Yes, Ginnie Mae Pass Through securities are backed by the full faith and credit of the U.S. government, guaranteeing timely payment of principal and interest to investors.
What are the risks associated with Ginnie Mae Pass Through?
The primary risk involves prepayment rates. If borrowers prepay their mortgages, the investor’s expected returns may be reduced. Interest rate risk and re-investment risk are also factors to consider.
Who typically invests in Ginnie Mae Pass Through securities?
Investors who typically seek the security of government-backed investments, such as retirees, institutional investors, pension funds, and mutual funds, invest in Ginnie Mae pass-through securities.
Related Terms
Mortgage-Backed Security (MBS)
A mortgage-backed security is an investment similar to a bond that is made up of a bundle of home loans bought from the banks that issued them.
Pass-Through Security
A pass-through security is a debt obligation that represents a claim to the cash flows from a pool of debt obligations such as mortgages or other loans.
U.S. Department of Housing and Urban Development (HUD)
HUD is a cabinet department in the executive branch of the U.S. federal government created in 1965 to develop and execute policies on housing and metropolises.
Online Resources
- Ginnie Mae Official Website: Ginnie Mae
- Investopedia’s Guide to MBS: Investopedia MBS Guide
- HUD’s Overview of Ginnie Mae: HUD Guide
References
- “Investing in Mortgage-Backed and Asset-Backed Securities” by Glenn M. Schultz.
- Ginnie Mae website: www.ginniemae.gov
- “Fixed Income Analysis” by Frank J. Fabozzi.
Suggested Books for Further Studies
- “Mortgage-Backed Securities: Products, Structuring, and Analytical Techniques” by Frank J. Fabozzi.
- “Investing in Income Properties: The Big Six Formula for Achieving Wealth in Real Estate” by Ken McElroy.
- “The Real Estate Wholesaling Bible: The Fastest, Easiest Way to Get Started in Real Estate Investing” by Than Merrill.
