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> the Fed is purchasing agency MBSs at market rates In what way are they "market rates" when the Fed printed $1.5T out of thin air to purchase them? Rather, Th
by ergoproxy 13y ago
> the Fed is purchasing agency MBSs at market rates
In what way are they "market rates" when the Fed printed $1.5T out of thin air to purchase them? Rather, The Fed is using its market power to set the prices of MBSs.
- Tycho 13y agoBut it's not like they started bidding on these at 10cents on the dollar and have pushed them all the way up to par. If you look at the transaction data, starting from 2009 the prices have always been round the 100 mark, give or take a percent or two. And why wouldn't they be? The Gov has guaranteed all of these!
- ergoproxy 13y ago> The Gov has guaranteed all of these! The word "guarantee" gets tossed around a lot, but it's misleading: Fannie and Freddie's "implicit guarantee" only means that the government will lend these GSEs funds to ensure timely payments of principal and interest to mortgagees (not MBS investors!), at rates slightly above the government's own borrowing rate, up to the "conforming loan limit" which is $417,000 in most areas. So it doesn't entirely eliminate default risk. And it doesn't reduce servicer risk or interest rate risk at all. Only in 2013 with QE3 did The Fed start buying Ginnie Mae MBSs with an "explicit guarantee" that entirely eliminates default risk. (These securities still have issuer/servicer risk.) But The Fed is still buying non-Ginnie MBSs as well.