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Government Agencies and
Related
Securities
- The Main Issuers
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Background of the main GSE
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Types of Securities
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Background of the main GSE
Ginnie Mae (GNMA) - The Government National Mortgage Association was created in 1968 and
is a wholly-owned corporation of the U.S. Department of Housing and Urban
Development (HUD). Ginnie Mae provides insurance programs, which insure the
repayment of principle and interest on federally-insured mortgage-backed
securities issued by FHA, VA, RHS and PIH. Ginnie Mae is the only MBS backed
by the full faith and credit of the U.S. Treasury. Because of this written
guarantee, Ginnie Mae’s debt securities yield slightly less than other
non-guaranteed agency securities. Ginnie Mae has insured over $2 trillion
in MBS, helping more than 30 million American families gain access to
affordable housing. Ginnie Mae insures the repayment of certain debt
securities.
Fannie Mae (FNMA) – The Federal National Mortgage Association, rated AAA by the credit
rating agencies, was chartered by congress in 1938 and is a by-product of
the 1929 depression. Their logo describes their mission: “Our Business is
the American Dream.” They help low, moderate and middle income people obtain
mortgages to buy homes. Normally mortgage applications are approved by
lenders, on a case by case basis, and a determination is made if the
borrower’s loan is eligible to be sold to Fannie Mae (or Freddie Mac).
Fannie Mae purchases mortgages loans from lenders, packages them as
securities, and sells them to investors, acting, in essence as a bridge
between savers and potential homeowners. In 1968 Fannie Mae became a public
company. Investors can participate in Fannie Mae, either by purchasing
equity shares, or through their numerous debt offerings. One can purchase
their shares, bonds, notes and MBS through brokerage firms.
Freddie Mac (FHLMC) – The Federal Home Loan Mortgage Corporation, a triple A rated company,
was established by congress in 1970 and became a fully public company in
1989. It purchases residential mortgages from lenders and packages them in
collateralized MBS. Freddie Mac either holds the paper or sells it to
investors. It tries to provide a stable supply of money for lenders to make
new loans. Freddie Mac, like Fannie Mae, offers a broad range of equity and
debt offerings that investors can participate in.
(The author recognizes the fact that Fannie Mae and
Freddie Mac have serious accounting issues. Bookkeeping aside, as long as
homeowners continue to pay their mortgage payments, and the government
doesn't go ballistic, these organizations are solid.)
Tennessee Valley
Authority (TVA) – Established in
1933 to improve the economic and social well-being of the people living by
the Tennessee River Basin, TVA supplies power to the region, promotes
development, and acts as a steward over the valley’s natural resources. TVA
is not a public corporation, and therefore has no public common stock. It
does, however, have extensive capital requirements to fund its power
programs. Investors can participate in its various debt offerings. They
carry the highest triple A credit ratings and are backed by the revenues
generated by the TVA Power System. TVA bonds are not guaranteed by the U.S.
Government. Interest income is normally tax exempt at the state and local
levels; always double check, however, with the IRS for the most recent tax
status.
Farm Credit System (FCS)
– A system of banks and
associations created in 1916 that provides mortgage loans and related
services to farmers, ranchers, rural homeowners, agricultural cooperates,
rural utilities, and agribusinesses. Loans are financed by the sale of bonds
and notes in the capital markets, and interest income on bonds is normally
exempt from state and local taxes, but not federal taxes. Always check with
the IRS for the most recent tax rulings.
Sallie Mae (SLM
Corporation) – Established by
Congress in 1972, to provide liquidity to the student loan marketplace.
Since 1996, SLM Corporation has been shedding its GSE status. Sally Mae,
with over 7 million borrowers, is the largest provider of educational loans
in the United States. It is a finance company, whose business model centers
on purchasing student loans from lenders. Sallie Mae’s debt is not
guaranteed by the U.S. Government. In several states, the interest earned on
Sally Mae’s bonds is tax exempt. Always check with a tax advisor for the
most recent rulings.
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