Ginnie Mae's are mortgage-backed modified pass-through securities issued by the Government National Mortgage Association (GNMA). GNMA was created by Congress in 1968 to assist with the market for federally insured or guaranteed mortgages.

From an investor's point of view, investing in GNMA certificates (or mutual funds that primarily hold GNMA's) produces regular current income as well as return of capital in a relatively conservative investment.

A GNMA (as well as it's riskier cousin, the C.M.O.) is derived when a number of individual mortgages are packaged together. This pooled package of mortgages repays the investment monthly with interest.

This is simply the flip-side of borrowing money through a mortgage. If you are the borrower, you pay some of the principal and the interest on the outstanding balance every month. In the early years of a mortgage, you pay alot of interest and a little principal every month. As the balance of the loan drops over time while the monthly payment remains the same, you begin to pay more principal and less interest over time. It's also possible that long before the mortgage is paid off, you move to a different house and the loan gets paid off as the new buyer of the property takes out a new mortgage of his own. If interst rates drop significantly, you can get a new mortgage yourself and pay off the older, higher interest mortgage.

As the buyer of a GNMA, you assume the position of the lender instead of the borrower. You will get some interest and some principal every month, and it is always possible that one of the mortgages in the underlying pool will pay you back the principal in its entirety.

For more information on GNMA's and current offerings, please contact your broker.