Fannie Mae (FNMA)

[obiterdictum]

1. It appears Gooberment is attempting to divest itself of sponsorship status by keeping liability off its books leaving common shareholders holding the bag which could/would cause irreparable damage to MBS holders whenever default collateral becomes insufficient violating their rights to implied Government backstops that came with original purchase.

If the Federal Reserve Banks (FRB) reduce their Agency MBS portfolios by the sale of their agency MBS to investors, they will have neither MBS assets nor MBS liabilities associated with the sold items on their books. Just cash from the sale of the MBS.

Also, the FRB can reduce their portfolio by not reinvesting further in agency MBS after they MBS matures and is paid off. The principal and interest retained from the matured MBSs will accrue and will be sent to the Treasury, as in the past, if there is a net income remaining. So, the FRB could use one method or the other or both methods to reduce the amount of agency MBS they hold.

Doing any of these methods does not threaten GSE shareholders. It will also not cause defaults on either MBS the GSEs hold or MBS held by others since the source of income for both are the high FICO score borrowers who pay principal and interest on these MBS. If defaults occur, the GSEs would cover there portfolio needs alone or in conjunction with the US Treasury draws that are still availble through the SPSPAs. Investors have taken the credit risk when they purchased the agency MBS. Even so, defaults on Agency MBS that are based on high underwriting standards are highly unlikely.

2. I can't currently locate the shadowy chain of transactions showing the $$$ that are actually propping up the current MBS held as assets by the Federal Reserve to be China so I'll retract that statement for now but currently MBS is about 41% of Federal Reserves total SOMA...

Collateral for U.S. currency in circulation and other reserve factors that show up as liabilities on the Federal Reserve System's balance sheet https://www.newyorkfed.org/markets/soma/sysopen_accholdings.html

I doubt that it will be found that China is propping up FRB MBS assets. US borrowers are paying the principal and interest on the agency MBS held by the FRB.

Source:
MBS - Videos
http://www.investopedia.com/video/play/what-are-mortgage-backed-securities/