Not all mortgage-backed securities are equal. The ones from Ginnie, Freddie, and Fannie are considered the safest and highest quality mortgage-backed securities. They are issued by the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac). Ginnie Mae is backed by "the full faith and credit of the U.S. government," and guarantees that investors receive timely payments, and Fannie Mae and Freddie Mac also provide certain guarantees and have the ability to borrow from the U.S. Treasury if the need arises, according to the Securities and Exchange Commission (SEC).
The income an investor gets from mortgage-backed securities from Ginnie, Freddie, and Fannie are “passed through” that organization minus a processing fee. This differs from traditional bonds, which pay a coupon (or an interest payment) and fixed principle. Mortgage-backed securities pay investors “a share of all principal and interest payments made on the pool of loan assets,” according to the SEC.
