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GNMA stands for Government National Mortgage Association, and is a government organization which guarantees mortgages with government money. Unlike Fannie Mae, it is the only quasi governmental organization that explicitly receives financial backing. Often GNMA is abbreviated to the affectionate moniker Ginnie Mae.

Although Ginnie Mae does not fund the mortgages directly, it does provide backing to lenders who put up the money for home buyers. Therefore there are four parties involved. A lender such a bank will lend money out to a buyer, who then takes the money and uses it to buy a home from a seller. Over time, the buyer pays back the money to the lender. Should the buyer default or go bankrupt, Ginnie Mae steps in to guarantee the loan.

Lenders who issue the mortgages expect to be paid back the principal plus interest. These mortgages can be securitized and resold to investors. Such securities, if aggregated from multiple sources, becomes the foundation for GNMA mutual funds. Their attractiveness lies in the fact that the returns are stable, and the principals are backed by government money.

GNMA mutual funds can be compared to a few other government-related financial products.

The first government security we consider is bonds and bond funds. Giant firms and governments need to carry debt in order to execute daily operations until enough income is amassed to repay the loan. Such a large scale financing cannot be accomplished using a typical bank, but instead should be self-financed via the sale of bonds that are promises of payment. Private investors, companies and even other nations buy bonds issued by the United States government on account of historical performance and robustness of the American markets.

One kind of fund which remains poorly understood is the Fannie Mae mutual fund. As mentioned above, Fannie Mae lends to property consumers and reaps the interest payments. During the home loan collapse of 2007-2008, Fannie Mae was lambasted due to its part in lending to risky mortgage seekers. In contrast Ginnie Mae emerged relatively undamaged because of extremely low-risk investments.

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