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Highlights:
- GNMA Midget refers to a pass-through certificate backed by fixed-rate mortgages.
- The certificate typically has a 15-year maturity period.
- The term is used by dealers, not by GNMA in its formal program descriptions.
A GNMA Midget is a type of pass-through certificate, backed by fixed-rate mortgages. The certificates represent a pool of mortgages that homeowners have taken out, and they pass the principal and interest payments to investors who own these certificates. One notable feature of GNMA Midget certificates is that they generally have a maturity period of 15 years, meaning the mortgages backing the certificates are expected to be repaid over this period.
While the term “Midget” is commonly used by dealers and market participants, it is not an official term used by the Government National Mortgage Association (GNMA) in its formal program descriptions. GNMA is a government agency that guarantees the timely payment of principal and interest on mortgage-backed securities, which ensures a level of security for investors.
The GNMA Midget specifically pertains to those certificates where the underlying mortgages have fixed interest rates, offering a predictable income stream for investors. Because these securities are backed by government guarantees, they are considered a relatively low-risk investment. The 15-year maturity period makes them somewhat shorter in duration compared to other mortgage-backed securities, which may have longer terms, such as 30 years.
This specific investment vehicle is typically attractive to investors who seek steady returns with less interest rate sensitivity than longer-term securities. The 15-year maturity provides quicker repayment of principal, allowing investors to recoup their investments more quickly.
Conclusion
The GNMA Midget represents a specific category of pass-through certificates with a 15-year maturity backed by fixed-rate mortgages. Though the term is commonly used in the dealer market, it does not have formal recognition by GNMA. For investors, it offers an attractive, government-backed investment option with moderate risk and a predictable return schedule.
