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This post covers some basic knowledge one needs to invest in a business like MORTGAGE REIT that in itself mostly invests in Mortgage Backed Securities mostly by using short term Repurhase obligations keepings its securities as collateral.
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What are the differences between Fannie Mae, Freddie Mac and Ginnie Mae? Ginnie Mae and Fannie Mae began as one organization more than 70 years ago, known as the Federal National Mortgage Association (FNMA). In 1968, Congress partitioned FNMA into two entities: Fannie Mae and Ginnie Mae. Fannie Mae was charged with supporting the conventional mortgage market and Ginnie Mae was charged with supporting the market for FHA, VA, RD, and PIH loans. Freddie Mac was later created in 1970 and also supports the conventional mortgage market. The key differences between Ginnie Mae and the Government-Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, include: 1. Only Ginnie Mae securities are explicitly backed by the full faith and credit of the U.S. Government. 2. Ginnie Mae itself does not issue securities. It just guarantees the securities issued by reputable organizations. Primarily it’s the responsibility of that organization to service those securities. If they fail then Ginnie Mae foots the bill. While the GSEs are responsible for the financial losses related to the loans in their investment portfolios and MBS, the Ginnie Mae Issuer must make principal and interest pass-through payments to investors for delinquent loans, as well as provide the funds to re-purchase loans to foreclose on a home or modify a loan. Ginnie Mae Issuers are responsible for any unreimbursed costs associated with either violating insurers' servicing guidelines or for inadequate insurance coverage. This requirement provides a strong incentive for private institutions to make better quality mortgage loans. It is important to note that Ginnie Mae does not have a financial obligation to MBS investors unless the Issuer becomes insolvent. NOTE: Ginnie Mae only guarantees top notch securities. In the year 2013 it guaranteed $460 billion of Mortgage securities. It has profitably guaranteed over $2 trillion of mortgage backed securities since 2009, providing housing opportunities to 8.8 million households. (Source – 2013 report to Congress by Ginnie Mae) GinnieMae is a mono-line business that insures only Issuer performance. There are three levels of protection that must be exhausted before the GinnieMae guaranty is at risk: homeowner equity, the insurance provided by the Federal Government agency that insured the loans, and the corporate resources of the lender that issued the security.GinnieMae is in the fourth and final loss position. What is the TBA Market? Ginnie Mae’s creation of Pass through Securities Led to establishment of TBA market. Investors in TBA Securities know that the terms and conditions of the security are consistent and the underlying mortgage loans are comprised of relatively homogeneous collateral. This process enables lenders to lock in a rate before closing , which facilitates the availability of mortgages to millions of consumers. What is Mortgage Warehouse lending? Warehouse lending is a short-term revolving line of credit provided to a mortgage banking company to fund the closing of mortgages from the closing table to sale in the secondary market. The mortgage note is used as collateral for interim financing until the mortgage is sold and delivered to the permanent investor. Mortgage bankers draw upon the line of credit to fund a mortgage at closing or to purchase a closed loan from another originator. The line of credit is paid off when the loan is sold to the end investor. Warehouse lending contributes to the financial capacity the industry provides for originating loans for first-time homebuyers; refinancing troubled borrowers into new mortgages; assisting other borrowers in securing credit for residential mortgage transactions; and originating loans for the purchase, refinance or repositioning of rental properties. |
