Sep 15th, 2008
Why Ginnie Mae isn’t in the Same Boat as Fannie Mae and Freddie Mac
Up until recently, Ginnie Mae (GNMA), the Government National Mortgage Association, seemed to be just another nickname for a mortgage backer like Fannie Mae and Freddie Mac. Yet with all the disaster around Fannie and Freddie, there’s little talk about trouble at Ginnie Mae. Why is that?
One simple, but world making difference between Ginnie and its siblings: GNMA is a government owned corporation which has the explicit guarantee of the federal government. Fannie and Freddie simply had implied guarantees of the federal government. Where investors have fled from stocks and bonds in Fannie and Freddie (and their prices have reflected this), Ginnie Mae funds, on the other hand, have benefited from a flight to quality and are doing as well as ever.
For what it’s worth, I do own shares in the T. Rowe Price GNMA fund, PRGMX, which has returned 3.54% year to date with a yield of 4.79%. And I’m glad, too!
[...] The Vanguard GNMA Fund is a high quality bond fund that invests a minimum of 80% of its assets into Government National Mortgage Association (GNMA or Ginnie Mae) certificates–these, unlike Freddie Mac or Fannie Mae certificates are directly backed (rather than just implicitly backed) by the federal government, meaning your risk of default is about as close to zero as possible. [...]
[...] Suenaga presents Why Ginnie Mae isn’t in the Same Boat as Fannie Mae and Freddie Mac posted at Uncommon [...]
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