Ginnie Mae Pass-Through
Mortgage backed security giving the holder a proportional interest in a pool of residential mortgages, guaranteed by the Government National Mortgage Association. Ginnie Mae securities are called passthroughs because the originating banks, mortgage bankers, and savings institutions pass all principal and interest, plus repayments, directly to the investor. There is no reinvestment of principal, as there is in mortgage backed bonds.
Ginnie Mae securities are collateralized by Department of Veterans Affairs guaranteed and Federal Housing Administration insured mortgages. There are two different types of Ginnie Mae securities available to investors. GNMA I certificates remit payments directly from the issuer to the investor on the 15th of each month. The holder gets a separate payment of principal and interest for each certificate issued. Payments on GNMA IIs are made on the 20th of each month. These securities, unlike GNMA I's, are backed by guaranteed loans from geographically dispersed multiple loan pools, and pay a coupon interest rate that can vary up to 1%. Originating financial institutions deduct a servicing fee of l⁄2 of 1% before remitting mortgage payments to Ginnie Mae. (The servicing fee on GNMA II pass-throughs can vary from l⁄2 of 1% to 1.5%.) Ginnie Mae securities are called modified passthrough securities because the Coupon Rate (also called the production rate) of the securities is reduced by the issuer's servicing fee. Because Ginnie Mae securities are backed by the Full Faith and Credit of the U.S. Government, these issues have a wide Secondary Market. Futures contracts in Ginnie Maes have been traded on the Chicago Mercantile Exchange since 1972. See also Participation Certificate; Secondary Market.
