US-backed 'Ginnie Maes' offer investment haven

At a time of bank failures, corporate bankruptcies, and uncertain interest rates, many investors are making a ''flight to safety.''

One of the places some people have been flying to is a vehicle known as ''Ginnie Maes.'' Named for the Government National Mortgage Association that issues them, these securities are backed by home mortgages and the United States government. They first became available in 1970, shortly after GNMA was organized as part of the Department of Housing and Urban Development.

Today Ginnie Maes are being purchased by a growing number of investors looking for a safe haven for their money, along with a monthly check.

In less than two years, individuals have increased their ownership of Ginnie Maes about 30 percent - from $2.1 billion to $2.8 billion. They now hold almost 2 percent of the $136.3 billion in outstanding Ginnie Mae securities. The rest is held by mutual savings banks, savings and loan associations, commercial banks , pension funds, credit unions, insurance companies, and state and local governments.

One of the primary attractions for these investors, including individuals, is that the securities are backed by the full faith and credit of the US government. So while there is some risk of diminishing interest payments, the principal is fully protected.

In almost all cases, Ginnie Maes bought by individuals are part of a ''pool'' of mortgage-backed securities put together in $1 million minimums by mortgage bankers and financial institutions. A few years ago several brokerages began buying these pools and selling them to their customers in shares of at least $25 ,000.

Today most large brokerages sell Ginnie Mae shares, and many regional brokers also sell shares packaged by a larger firm. Philadelphia-based Butcher & Singer Inc., for instance, last year bought more than $750 million worth of Ginnie Mae pools and split them into small pieces for sale to more than 100 regional brokerages. This year, the firm expects to line up more than 200 regional firms.

While the minimum amount for buying a share in a new Ginnie Mae pool is $25, 000, it is possible to buy into a pool containing older mortgages for much less. Some of the mortgages in the pool have been paid off or partially paid off. So, most of the brokerages that sell the $25,000 version also participate in a ''secondary market'' that investors can get into for, say, $20,000 and, in some cases, less than $15,000.

Because the pools are made up of mortgages that are currently being paid off by homeowners, there is some risk that the monthly payments will fluctuate, says George Herter, a vice-president at Paine Webber Inc. If a homeowner pays off a mortgage or sells the house, that mortgage is no longer part of the pool, he explains. When this happens, the investor will likely see a one-time jump in the size of his monthly payment, followed by slightly smaller payments after that.

Ginnie Mae pools have a maximum life of 30 years, which is the term of the most common mortgages. But because most people sell their homes well before that , the yields on Ginnie Maes are commonly quoted on a 12-year basis. The result is that the yields quoted are often higher than on US Treasury notes and bonds.

Mr. Hester recommends Ginnie Maes to a wide variety of clients, but he thinks they are especially suited to people who have retired or are about to do so. The safety of principal and the monthly checks representing principal and interest make Ginnie Maes especially attractive to this group, he says.

''As people retire, they are very conscious of cash flow on a monthly basis. . . . They like the idea of a monthly check to tie in with their monthly pension and social security checks.''

Also, Mr. Herter says, retirees are ''very quality conscious.'' And even in the recession, the default rate on home mortgages has stayed fairly low. This, plus federal government backing, makes Ginnie Maes one of the more secure investments.

Still, Herter cautions, they should be purchased by people who can afford to diversify their investments. If the monthly payments drop suddenly, there should be other investments to take up the slack.

If you would like a question considered for publication in this column, please send it to Moneywise, The Christian Science Monitor, One Norway Street, Boston, Mass. 02115. No personal replies can be given by mail or phone. References to investments are not an endorsement or recommendation by this newspaper.