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Unformatted text preview: rchase mortgages. Its function is to guarantee that principal and interest will be paid every month. Since it is a government agency, the guarantee is backed by the “full faith and credit” of the U.S. government. For this guarantee, Ginnie Mae receives a small fee from the lender, which is collected monthly. The minimum amount that can be placed in a pool is $1,000,000. The mortgages cannot be over one year old and must have met predetermined average yields for the pool of loans. The pool can contain any combination of FHA and DVA mortgages. The lender can apply to Ginnie Mae for a commitment to issue a certificate at any time. When applying, it must indicate the size of the pool and the rate of interest on the mortgages. If Ginnie Mae approves the request, it issues a commitment that is good for one year. Before the certificate is sold, Ginnie Mae requires that the mortgages be in the hands of a third party. This party acts as a trustee for Ginnie Mae and is called the custodian. The custodian is usually a bank, but it could be any federal or state financial institution acceptable to Ginnie Mae. The lender delivers the mortgage documents to the custodian, who checks the information carefully. Once the custodian is satisfied that it has all the documents, it notifies Ginnie Mae. The certificate is then issued to the lender. With the certificate in hand, the lender is able to sell the mortgages to an investor. When the investor buys the mortgages, it receives the certificate. Typically, the securities are purchased by securities dealers who trade in Ginnie Mae securities. They in turn sell the securities to other investors such as insurance companies, pension funds, other lenders who need mortgages, and individuals. The securities can be broken down into smaller denominations to satisfy the demands of the various investors (the smallest denomination is $25,000). The securities are traded on Wall Street just like stocks and bonds. There is an active market for the securities, which makes them a liquid investment. 5-14 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 5: GOVERNMENT PARTICIPATIO...
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- Spring '10