Mortgage Certificates

One of the most popular types of securities from the federal organisms is the mortgage certificate. In these last years you might have heard about Ginnie Mae, Freddie Mac and that of their stepdaughter Sallie Mae, are known as pass-through securities. When you buy a Freddie Mac bond or Ginnie Mae bond or if you invest in a Mutual Fund composed by such securities, you are buying an undivided participation in a common mortgage fund. As participant, you have the right to receive monthly a proportional part of the payments of the principal and of the interests collected by the common mortgage fund.

The creation of pass-through securities such as Freddie Mac and Ginnie Mae, are the sources by which the Federal Government negotiates the mortgages that they guarantee. In this way, the government can extend its efforts directed to give their citizens an appropriate dwelling at a reasonable price.

You, as an individual investor, might find in the pass-through securities an attractive source to fulfill your investment goals. And that for represents in the emission of these securities. The second, for the attraction that it supposes for many investors to receive monthly the revenue of their investment, which makes it easier to equal their income with their expenses; and the third, for the high degree of liquidity that these securities have, and to which you have to add the slightly superior profitability to that of other types of treasury emissions. However, we recommend that you be more cautious when you read in the newspapers or hear on the media that they are offering Ginnie Maes with exceptional returns. If there is sometime a high profitability is due to pure luck. Think that Ginnie Mae represents a participation in common mortgage fund and that there exists the possibility that this determine fund has a very high “velocity”,”Velocity”, in the professional jargon, is the rhythm at which the mortgages of the fund are liquidated. It is said that a fund has a high velocity when it coincides with the death of a series of mortgage creditors or if they decide to liquidate the mortgages for any other reason.

This high velocity is only temporal, for which at the end they usually accommodate them and return to their normal indexes. So, this profitability superior to the normal is only worth during a short period of time.

These announces usually include a note that says that the mentioned rate of profitability is only worth at the date of its editing.

Although there are some inconveniences related too the mortgage certificates, the truth is that these securities may constitute a valuable contribution too the portfolio of an individual investor.