Little old Prosperity Bank of St. Augustine, Florida was mentioned Thursday in the Wall Street Journal as one of the banks
loading up on Ginnie Mae bonds, while simultaneously off-loading Fannie and
Freddie securities. Ginnie has soared in
popularity, doubling the amount of securities it backed from the same time last
year. Banks have TARPed their rainy days
to buy up Ginnie’s securities. She’s a
shoe-in for prom queen.
The Government National Mortgage Association, GNMA or affectionately known as “Ginnie Mae,” is in her early forties. Unlike her cousins, Freddie and Fannie, Uncle Sam is Daddy Sam for Ginnie Mae. The US Federal Government explicitly backed Ginnie Mae mortgages from the onset, thus making her historically safer than Fannie and Freddie. Ginnie has always had a risk weighting of 0%, guaranteeing the investor will continue to be paid even if the borrower defaults.
While replacing Freddie and Fannie with Ginnie securities doesn’t change a bank’s balances, it reduces the risk. At this point, Ginnie’s backing more securities than ever, amounting to 20% of total new mortgages. Ginnie’s released from her bottle and is being liberally poured over the credit crisis. The question is if she will raise the cost of mortgages or hinder their availability.
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