Ginnie Mae Pass Through

DEFINITION of 'Ginnie Mae Pass Through'

A type of investment issued by the Government National Mortgage Association (GNMA), known as Ginnie Mae, that draws income from pools of Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) mortgages. Ginne Mae pass-through securities earn income from the interest and principal payments made on mortgages by mortgage holders. This type of security is backed by the full faith and credit of the United States government.

BREAKING DOWN 'Ginnie Mae Pass Through'

A Ginnie Mae pass-through security is similar to other mortgage-backed securities in that income is dependent on payments that mortgage holders make on their mortgages, which is “passed through” (less a fee) to the security holder. This type of security provides monthly income over a period of time, and is generally considered to be safe because it is guaranteed by the government. The mortgages in Ginnie Mae pass-through securities have been guaranteed by the FHA or VA, meaning that the government has insured them. These mortgages are than collateralized.

There are two pools of Ginnie Mae pass-through securities generating income: Ginnie Mae I and Ginnie Mae II. Ginnie Mae I (or GNMA I) is comprised of mortgages that pay principal and interest on the 15th of every month, while the Ginnie Mae II (or GNMA II) does the same on the 20th of every month. The amount of interest may vary, since different mortgages have different rates. Security holders also run the risk of having the mortgage principal paid back faster than anticipated, especially if interest rates decrease and mortgage holders are able to refinance at lower rates.

Income generated from Ginnie Mae pass-through securities is considered taxable on both the state and federal level. Security holders can sell Ginnie Mae pass-through securities just like any other investment, with the market value of the security calculated at the end of each business day.