Finance Guide

The term “agency securities” is used in the United States of America to describe securities issued by agencies of the federal government. Because these securities have a federal government guarantee behind them, they are perceived by investors to be almost risk-free investments. They are also exempt from taxes.

Some examples of the agencies which might issue agency securities are the Federal National Mortgage Association (FNMA, also known as Fannie Mae), the Government National Mortgage Association (GNMA, also known as Ginnie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC, also known as Freddie Mac). As their names suggest, all of these organizations are involved in supporting the mortgage market in some way, with the ultimate aim of making mortgages more affordable for certain groups of people or for people in general. Often, these organizations are active in the secondary market for mortgages, buying up mortgages and repackaging them into bundles, which are then sold as securities.

Because securities are priced according to the perceived risk they present to investors, these agencies are able to raise funds at very low interest rates compared to other organizations such as private corporations. Agency securities are regarded as attractive investments because they provide an income, are readily tradeable and are almost risk-free.