If the [tag]Federal Reserve[/tag] does as expected and leaves short-term interest rates unchanged next week, investors looking for a conservative income mutual fund might consider those that invest in Ginnie Maes. Some fund managers believe these [tag]government-backed mortgages[/tag] can perform well in a stable interest rate environment. Denis Jamison has been managing the same [tag]Ginnie Mae[/tag] fund for nearly 25 years _ almost as long as many people take to pay off their [tag]home mortgage[/tag]s. Having shepherded the ING GNMA Income fund through a variety of market conditions, he sees the present environment as ideal for investors looking for a steady income stream to invest in mortgage funds.

Ginnie Maes tend to pay less interest than other types of mortgage-backed securities because their principal and interest payments are guaranteed by the government. The Government National Mortgage Association works by packaging mortgages from agencies such as the Department of Housing and Urban Development or the Department of Veterans Affairs.Mortgage funds are worth examining, Jamison said, because the underlying mortgages prices are generally at or below par, or face value, giving a fund’s principal room to appreciate. Also, the coupon, or interest rate, on these mortgage securities is about 100 basis points higher than the yield on a benchmark [tag]10-year treasury note[/tag] before inflation. Ginnie Maes tend to be less sensitive to interest rates than are the 10-year Treasuries, he notes.

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