Fannie Mae-No Politics (FNMA)

[big-yank]

Yes there is an asset supporting the mortgage loan that Fannie Mae purchases from a bank and uses as the basis for issuing MBS. If you buy MBS bonds, however, except in very rare cases, bond owners do not have liquidation rights to the property used to collateralize the loan.

The argument isn't worth any careful consideration because no default on MBS is ever likely to occur as so much of it is held as sovereign debt that the government must in practicality pay out on if Fannie can't, simply because Treasury would be unable to sell other forms of sovereign debt after any whiff of default on GSE bonds. And, yes, I know all the rhetoric that no government guarantee is committed, but it is always assumed in case of a dire economic collapse of FnF.

As stated, earlier, under the doctrine of fairness, I presume that ANY bankruptcy judge will assign mortgage proceeds to be paid to MBS bondholders, leaving that group exposed only to losses sustained for loan defaults which would be unlikely to ever even reach 5%. That is still a big number, overall, I grant you. But defaults dwindle as loans mature except for the adjustables that destabilize if interest rates rise suddenly, as they did in the post-Nixon era. Not likely, today,as much of the globe ponders negative rates.

JMHO.