Mortgage News

With all the attention paid lately to Fannie Mae and Freddie Mac, there has been almost no attention paid to Ginnie Mae. Ginnie Mae is the Government National Mortgage Association and is a HUD-owned GSE. Unlike Fannie and Freddie, which only implicitly back their respective mortgages, Ginnie's backing is explicit.

If you do some poking around the Internet about Ginnie Mae as of this date, you'll find no information about its solvency. Not even Ginnie Mae's own website provides any information about default rates. Ginnie Mae guarantees FHA and VA loans and apparently represents about 10-20% of the overall mortgage market, and because it is an explicit government guarantee, all articles I've found on the subject have repeated the mantra that Ginnie Mae is safe and therefore financially healthy.

But is Ginnie Mae really financially healthy? There's really no reason to believe that it is. After all, FHA and VA loans are, by definition, high risk. No one seems to know how many of those borrowers are now having problems making ends meet.

Some would argue that FHA loans are only issued in situations where the government has made sure that the borrower has sufficient income to pay the mortgage, and that therefore there is little risk. This ignores the fact that the state of the economy is pretty rocky right now and has been for quite some time, particularly for lower class families. As the cost of energy and fuel keeps rising, and given the huge increases in the cost of basic foods over the past 8-10 years, the ability of poorer homeowners to keep making that mortgage payment has to be adversely affected. The fact that we really have no solid numbers as to how badly they've been affected, about how many are in default, simply means that we don't know, not that everything is okay.

I will not be surprised if news comes out in the weeks and months ahead that GMA guaranteed loans are in trouble.