Which characteristic separates Ginnie Maes from CMOs?

Which characteristic separates Ginnie Maes from CMOs?

• A. Collateralized by mortgages
• B. Backed by the full faith of the U.S. government
• C. Typically yield more than Treasury bonds
• D. Are pass-through securities

Answer: (B)

Ginnie Mae securities are unique because they are explicitly backed by the full faith and credit of the U.S. government. This government backing provides investors with a higher level of security compared to other mortgage-related securities, including collateralized mortgage obligations (CMOs), which do not carry this guarantee. The assurance from Ginnie Mae enables investors to have confidence that they will receive timely interest and principal payments, whereas CMOs are not backed by the government and therefore carry different risks associated with their structure and the underlying mortgages. While both Ginnie Maes and CMOs are related to mortgages and may yield more than Treasury bonds, the key distinguishing factor is the guaranteed support from the U.S. government, which makes Ginnie Maes particularly attractive to conservative investors who prioritize security. Other characteristics, such as being collateralized by mortgages or being classified as pass-through securities, apply to both Ginnie Maes and CMOs but do not serve to differentiate them.

Ginnie Mae securities are unique because they are explicitly backed by the full faith and credit of the U.S. government. This government backing provides investors with a higher level of security compared to other mortgage-related securities, including collateralized mortgage obligations (CMOs), which do not carry this guarantee. The assurance from Ginnie Mae enables investors to have confidence that they will receive timely interest and principal payments, whereas CMOs are not backed by the government and therefore carry different risks associated with their structure and the underlying mortgages.

While both Ginnie Maes and CMOs are related to mortgages and may yield more than Treasury bonds, the key distinguishing factor is the guaranteed support from the U.S. government, which makes Ginnie Maes particularly attractive to conservative investors who prioritize security. Other characteristics, such as being collateralized by mortgages or being classified as pass-through securities, apply to both Ginnie Maes and CMOs but do not serve to differentiate them.