7691 / What is a “Ginnie Mae” mortgage-backed pass-through certificate?

A Ginnie Mae pass-through certificate represents ownership of a proportionate interest in a fixed pool of mortgages insured or guaranteed by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), the Department of Agriculture’s Rural Housing Service (RHS), and the Department of Housing and Urban Development’s Office of Public and Indian Housing (PIH). The mortgages in the pool have the same interest rate, term to maturity, and type of dwelling. The certificates are generally issued by a mortgage banker or savings and loan association and are secured by the pool of mortgages that have been placed by the issuer with a bank custodian. They call for payment by the issuer of specified monthly installments based on the amortization schedules of the mortgages in the pool. In addition, the certificates provide for payment of a proportionate share of prepayments or other early recoveries of principal. An amount is withheld each month by the issuer to discharge the certificate holder’s obligation to pay servicing, custodian, and guarantee fees. Pass-through certificates may be either “fully modified” or “straight.”

Timely payment of the principal and interest, whether or not collected, is guaranteed to the fully modified pass-through certificate holder by the Government National Mortgage Association (GNMA, or “Ginnie Mae”). Straight pass-through certificates provide for the payment by the issuer of a proportionate share of proceeds, as collected, on the pool of mortgages, less servicing fees and other costs. Straight pass-through certificates are guaranteed by GNMA only as to proper servicing of the mortgages by the issuer (i.e., payment of interest and principal actually collected or collectible through due diligence).

The full faith and credit of the United States is pledged to the payment of all amounts guaranteed by GNMA.¹ Certificates are issued in registered form and are fully transferable and assignable. They are marketable in the secondary market. They are available in minimum denominations of $25,000 ($1 thereafter) and may be available for less in the secondary market. The maximum maturity is 30 years; however, experience has shown that the average life is shorter. If all certificate holders and the issuer agree, the pool arrangement may be terminated at any time prior to the final maturity date.

Similar mortgage backed pass-through certificates are issued and guaranteed by “Fannie Mae” (Federal National Mortgage Association or FNMA), but are not backed by the full faith and credit of the United States.