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Government mortgage guarantors are government agencies that guarantee repayment of mortgages. The agencies may accomplish guarantees by issuing a straight guarantee or with the use of mortgage insurance.
Government mortgage guarantors serve special constituencies. Typically, they serve borrowers that do not fit into conventional models. The largest government mortgage guarantors include:
- Federal Housing Authority (FHA) - insures low down payment mortgages
- Department of Veterans' Affairs (VA) - guarantees mortgages made to veterans
- Rural Housing Service (RHS) - guarantees loans made in rural areas
- Office of Public Land and Indian Housing - guarantees loans made to Native American purchasers
- Government National Mortgage Association (GNMA) - guarantees mortgage backed securities created from pools of loans guaranteed by other government mortgage guarantors.
In addition, Fannie Mae (FNMA) and Freddie Mac (FHLMC) are government-sponsored entities (GSE's). They were originally created by Congress, but are now shareholder owned and operate as public companies. Instead of insuring or guaranteeing mortgages, they purchase the mortgages from other banks to provide new funds for mortgages.
While Fannie Mae and Freddie Mac are not considered government agencies, during the housing crisis of 2008, the federal government stepped in to guarantee their viability. The two GSE's were placed under conservatorship of the Federal Housing Finance Authority (FHFA), with a US Treasury guarantee to provide additional funds if necessary to offset losses from a giant wave of mortgage foreclosures.
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