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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Jim McMannis who wrote (61373)	5/18/2006 12:04:41 PM
From: regli	Read Replies (1) \| Respond to of 110194

"Haven't the GSEs bundled the mortgages and sold them off as securities (to whom?). What risk are they carrying?" These quotes should answer the question: cbo.gov "First, they borrow money by selling corporate debt securities and use the funds to purchase mortgages and mortgage-backed securities (MBSs). They profit from that activity because the income that they earn on those assets exceeds the interest that they must pay on debt plus their operating costs. Second, Fannie Mae and Freddie Mac guarantee investors against credit losses on securities backed by pools of conforming mortgages." investinginbonds.com "Implicit Guarantee Most agency and GSE debt is not backed by the “full faith and credit” of the federal government, but investors generally treat the securities as if they had negligible credit risk. The markets believe the federal government would prevent an agency or GSE from defaulting on its debt because of its role in promoting public policy and because of the shear size of the largest of the agencies. As a result, agency securities have an “implicit guarantee” and trade in a narrow spread to Treasuries. (Their yields are usually slightly higher than Treasuries with comparable maturities but move in similar patterns.) However, both the agencies themselves and the federal government continually emphasize that there is no legal obligation for the federal government to support the debt of the agencies in the event of an insolvency or default."