In addition to its guarantee structures and servicing responsibility, Ginnie Mae differs from its secondary step-cousins in the size of its ranks.
Ginnie Mae is a government-owned corporation. While Fannie Mae and Freddie Mac are currently in conservatorship, they are privately held organizations with government sponsorship.
Ginnie, which is also known as the Government National Mortgage Association, and the GSEs provide for the conversion of individual loans into guaranteed mortgage-backed securities.
Those were some of the issues covered in a report from Ginnie, An Era of Transformation.
Ginnie’s MBS consist solely of loans backed by the federal government through the Department of Veterans Affairs, Federal Housing Administration or U.S. Department of Agriculture.
Ginnie guarantees the pass-through payments to security-holders and need only step in when an issuer is unable to meet its responsibilities under the program. This basically involves the failure of an issuer.
Issuers of Ginnie Mae securities, which have the explicit backing of the government, are fully responsible for servicing, remitting and reporting activity. They must make contractually required payments to security holders even on delinquent loans.
But on conventional loans, the servicing responsibility lies ultimately with Fannie and Freddie, which manage the portfolios of mortgage servicing rights assets on outstanding securities they issued and investments they acquired.
“These broad differences, in turn, give rise to other more-nuanced distinctions that lead Ginnie Mae toward the strategic view and direction discussed herein,” the report said. “The common element of these distinctions is the vastly narrower scope of Ginnie Mae’s concern, capability and responsibility relative to the GSEs.”
Since loans in Ginnie Mae MBS are guaranteed or insured by the government, it is not exposed to loan-level losses. But Fannie and Freddie guarantee the credit performance of the underlying loans and bear the default credit loss on loans in their MBS.
Ginnie doesn’t invest in loans or securities, whereas the GSEs have accumulated significant investments portfolios as they make a market.
Fannie and Freddie additionally face risks from other facets of that don’t impact Ginnie.
“They are responsible for the full spectrum of risk, from the acquisition of an individual loan to the potential failure of a seller/servicer.”
Risk of servicer failure, however, is small for the pair of secondary mortgage lenders.
Given Ginnie’s limited resources, it has less ability to oversee or manage servicing of assets. But Fannie and Freddie maintain significant staffs to establish and enforce servicing standards and oversee their servicers’ operations.
This is reflected in the companies’ overall staffing levels; headcount is 7,400 at Fannie, 5,053 at Freddie and only 108 at Ginnie.
“The preceding points lead to a perspective on the part of Ginnie Mae that is subtly but crucially different from those of Fannie Mae and Freddie Mac,” Ginnie said. “They are security guarantors as a byproduct of their broader role as asset gatherers and managers.”