Tdemars_Loansecuritization_080623

docx

School

Rasmussen College, Florida *

*We aren’t endorsed by this school

Course

1202

Subject

Finance

Date

Jan 9, 2024

Type

docx

Pages

Uploaded by BailiffFreedom1369

Running Head Loan Securitization and Ginnie Mae Security Loan Securitization and Ginnie Mae Security Tiffany DeMars Rasmussen University F108/FIN1202 Financial Markets and Institutions Kenneth Ritz 08/06/2023

Loan Securitization and Ginnie Mae Security Loan Securitization and Ginnie Mae Security What is Ginnie Mae pass-through security and what does it entail? How does it work? How is it related to finances. We will be discussing the securitization process. We will also be discussing how securitization benefits financial institutions, as well as any risks that may be created throughout the process. What is a Ginnie Mae security? Ginnie Mae security is a mortgage-backed security offered by Ginnie Mae. Pass-through simply means that there is scheduled principal and interest payments. Often times, Ginnie Mae securities, as well as Freddie Mac and Fannie Mae are classified together as mortgage-backed securities due to similarity in structure and criteria. (Beers, 2022) Ginnie Mae is government supported credit agency that operates in the U.S. credit market. It is also a federal government agency, whereas Fannie Mae and Freddie Mac are government-sponsored entities. However, Ginnie Mae does not originate loans, they are involved in the mortgage credit market through funding and issuance of mortgage-backed securities. They may not originate the loans but they do have unique requirements and interests for the loans they buy. Mortgages bought from banks and other financial institutions by Ginnie Mae and other federal level agencies are bundled, then marketed to investors as a sole investment. The money received for the purchase of the loans used in securitized products serves as capital for the financial institutions to fund new loans in the future. This allows flexibility to use the proceeds from those loans purchased by Ginnie Mae to provide new mortgage loans available to borrowers. Although each agency has its own criteria for loans, Ginnie Mae securities focus on the ones started through sponsored programs via the Federal Housing Association (FHA) 2

Loan Securitization and Ginnie Mae Security programs, Department of Veterans Affairs (VA), Rural Housing Service (RHS), and Public and Indian Housing (PIH). There are a few benefits to Ginnie Mae securitization. The biggest benefit to loan securitization with Ginnie Mae is the loss coverage if a borrower stops making payments. Although Ginnie Mae only guarantees a portion or piece of the payments, Fannie Mae and Freddie Mac purchase the entire loan. These investments also offer an option that pays higher rate than most CDs or money market funds. (Hawrylack, 2023) Ginnie Mae also guarantees MBSs for investors to make the mortgage market more readily accessible. As with any investment, there are risks. Prices can rise and fall depending on interest rates. If interest rates go up the market price will generally decline. Interest rate changes also have an impact on mortgage-backed securities (MBS) due the effect on mortgage prepayments. Prepayment rates affect the life and yield of said mortgage pool. They also speed up as interest declines due to mortgage holders being able to refinance as lower rates. Whereas, rising rates slow prepayments. There is a potential for returned principal sooner than planned if holders prepay their loans. It may also be returned later than expected if the mortgage holders are unable to complete prepayment at a later date. Both of these risks can potentially cause missed opportunities for reinvestment at better rates. We’ve discussed what a Ginnie Mae pass-through security and what it entails. The benefits and risks must be weighed by each investor and their specific current financial position and goals. We discussed the securitization process and the benefits of loss coverage, as well as higher interest rates typically applied to these types of loans. We also discussed how securitization benefits financial institutions, such as flexibility in their underwriting guidelines. As well as any risks that may be created throughout the process, such as early or later 3

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

Loan Securitization and Ginnie Mae Security prepayment causing possible loss of reinvestment. Ginnie Mae offers loan securitization to the financial institutions, which in the long run benefits us as consumers/borrowers with lower rates and the possibility of both obtainable, and payable loans. 4

Loan Securitization and Ginnie Mae Security References Beers, B. (2023, July 5). Ginnie Mae security: What it means, how it works . Investopedia. https://www.investopedia.com/ask/answers/ginnie-mae-security/ Hawrylack, S. (2023, July 24). What is Ginnie Mae and how does it work? . Quicken Loans. https://www.quickenloans.com/learn/ginnie-mae#:~:text=Ginnie%20Mae’s %20securitization%20model%20guarantees,the%20mortgage%20market%20more %20liquid Vanguard (n.d.-b). GNMA . Vanguard. https://investor.vanguard.com/investor-resources- education/understanding-investment-types/gnma-bonds#:~:text=Risks,they%20affect %20mortgage%20prepayment%20rates 5

Related Documents

Problem Set 3.pdf

Microsoft Word - Week 5__W.pdf

Sample Practial Questions 3.docx

Peak Roofing financials.xlsx

1.docx

Home Care Application.docx

Module 05 Written Assignment_Construction of an Amortization Schedule.xlsx

Tdemars_ConstructionOfAnAmortizationSchedule_080623.xlsx

WACC Project Instructions 2023 (1).docx

ICA23-I+%281%29.pdf

J_Fitzgerald_FIN534_WEEK10 ACTIVITY.docx

MRK516-W11B-Lab10.pdf

Related Questions

how does investment bank work

Banks? Banking Online? Is Banking Safe?

What is financial banking

Explain liquidity risk and credit risk faced by banks and discuss how banks managethese risks

Explain how banks can successfully undertake their role as financial intermediaries in the financial system. What benefits does the existence of banking financial intermediaries provide to end-users and society as a whole? Discuss.

Match the intermediary with the characteristic that best describes its function.I. Provide protection from adverse eventsII. Pool funds of small savers and invest in either money or capital marketsIII. Provide consumer loans and real estate loans funded by depositsIV. Accumulate and transfer wealth from work period to retirement periodV. Underwrite and trade securities and provide brokerage services1. Thrifts2. Insurers3. Pension funds4. Securities firms and investment banks5. Mutual funds A. 1, 3, 2, 5, 4B. 4, 2, 3, 5, 1C. 2, 5, 1, 3, 4D. 2, 4, 5, 3, 1E. 5, 1, 3, 2, 4

c. Please explain what is direct and indirect financing? What is the role of banks in direct financing?

What is investment bank?

what are the methods to maximize the use of credit card/s as financial leverage in your business?

Which of the following assets would be considered least liquid? Group of answer choices A savings account A checking account An interest-paying checking account A money market mutual fund Series EE US savings bonds

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:9781260013962

Author:BREALEY

Publisher:RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:9781337909730

Author:Brigham

Publisher:Cengage

Foundations Of Finance

Finance

ISBN:9780134897264

Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:Pearson,

Fundamentals of Financial Management (MindTap Cou...

Finance

ISBN:9781337395250

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i...

Finance

ISBN:9780077861759

Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:McGraw-Hill Education

SEE MORE TEXTBOOKS