The MBS guarantee liability falls on the GSEs no matter who buys the MBS. Don't give a rats arse about the FRB, LOL!
Yes. I know.
So FnF along with Ginnie Mae are currently liable for performance of MBS payments in excess of 1.77 trillion dollars... $1,773,621,269,900 plus inflation compensation to be exact.
In disregarding the mention of default and GSE payment in previous message, the statement above assumes correctly that the mortgages pooled to form the MBSs are to a large degree a credit risk for the holder/investor and a default risk for Fannie and Freddie. And it also assumes that because Fannie Mae guarantees that its MBS trust will have adequate monies to pay MBS holders/investors payments of principal and interest per prospectus, whether collected or not from the borrower, the GSEs are liable and must pay out any missing payments of principal and interest out of their corporate accounts since they have no direct government backing, like the government backing of Ginnie Mae.
From a technical, legal and contractual point of view that is so. In reality it is not so, so far.
Are the borrowers currently primed to default despite the gradually declining serious delinquency rate due to strengthened underwriting and eligibility standards and the maturing and ending of those pesky 2005 to 2009 loans so that these liabilities come to life as serious delinquencies and foreclosures? Does the huge income from guaranty fees mitigate the the threat of being actually liable for cash payments now? Is all of this not sufficient to cover the periodic defaults and delinquencies that are bound to occur?
If it is insufficient, is holding GSE stock prudent since it appears that there is a threat of a possible massive borrower default on $1.8 trillion in liabilities that will bankrupt the GSEs in one's imagination and in soon in reality?
If it is sufficient, is there any real financial threat in the GSEs multi-trillion dollar guaranty book of business?
Well, it can be said for once the nitty gritty of the GSEs business is touched upon. Thanks for that.
