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Thursday, September 15, 2016 10:03:45 AM
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.
In F&F guaranteed that's kinda true. In non-guaranteed it's not.
Also, RMBS is not the same as all MBS. So you should be saying GSE guaranteed MBS when you're making the statement for clarification purposes.
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.
This is why F&F won't go anywhere. If they blow up the guarantees spreads blow out and financing for residential mortgages largely does a full stop. At least the 30 years, which are still the plurality.
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