The securities carried AAA ratings, and yet offered much higher yields than other AAA-rated, non-MBS securities.
Issuers buy loans from sellers and pool them together to issue ABS or MBS to investors.
FORBES: Introduction To Asset-Backed And Mortgage-Backed Securities
The situation in agency-backed MBS is even worse, with foreign buyers all but on strike.
Still, over two-thirds of the drop in MBS yields resulted from falls in Treasury yields.
In QE1, the Fed purchased non-traditional assets for its portfolio, including mortgage backed securities (MBS) and derivatives.
FORBES: Peeking Into Ben Bernanke's Bag Of Unconventional Monetary Weapons
The primary reason PIMCO is buying MBS issues is because of the Fed.
There are three parties involved in the structure of ABS and MBS: the seller, the issuer and the investor.
FORBES: Introduction To Asset-Backed And Mortgage-Backed Securities
Regulators have also notified Wells Fargo of an investigation into its MBS sales.
Additionally, the Fed could shift some of their investments from treasuries to MBS, which would help to recapitalize the GSEs.
Many financial institutions have been criticized for packaging MBS that were not fundamentally sound and sold with no warnings to investors.
One investigation was related to delinquency disclosures in a JPMorgan MBS deal, while the other involves MBS created by Bear Stearns.
BofA enters the picture this way: It issued the MBS that MBIA insured, and MBIA maintains that many were horribly shoddy issues.
FORBES: MBIA Shares Spike 42% Over Reported Settlement With BofA
Government MBS insurance should initially be available alongside the private-sector MBS guarantees.
Private MBS investors might be an even bigger threat to the banks.
ECONOMIST: Banks are under assault from buyers of mortgage securities
But all issued fewer MBS to investors than Countrywide and might have had better underwriting practices, making them less vulnerable to legal attack.
Essentially leveraged bond funds with 100% government-backed mortgage-backed securities (MBS), the Agency MREITs have lately been subjected to a series of negative but largely irrelevant news headlines.
FORBES: Agency REITs Keeping Portfolios Safe During Volatility
Purchasing MBS to fuel the housing market merely delays the readjustment of relative prices that needs to occur before the U.S housing market can return to normal.
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The rise of Wall Street securitization of MBS (Mortgage Backed Securities), created an almost limitless variety of mortgage products and a market where everybody got approved.
As Forbes noted in October, Patrick was likely to target Wells Fargo and JPMorgan in helping her 23 big clients recover MBS losses related to the housing meltdown.
FORBES: BlackRock And Pimco-Led Group Targets Wells Fargo Over Mortgage Securities
The SEC is probing several big U.S. banks to find whether they misled investors about the soundness of MBS in the four years prior to the financial crisis.
Experts have come out to say that the selling of these securities will have a negative impact on the MBS market, while it will barely affect home prices.
FORBES: The Negative Effects Of The Treasury's Plan To Sell $142B Worth Of MBS
The Fed is highly leveraged and faces the risk of significant losses on its portfolio of MBS and longer-term government securities once interest rates rise, as they must.
FORBES: The Limits Of Monetary Policy Call For Moral, Sound Money
Another round of quantitative easing that is, the purchase of government bonds and mortgage-backed securities (MBS) is likely, with the objective of reducing longer-term interest rates to induce spending and growth.
FORBES: The Limits Of Monetary Policy Call For Moral, Sound Money
Anyone who owns stocks in banks with relatively large MBS exposure is not investing, they are gambling that the losses will not be more than management is telling them.
The people that were at the heart of the causes of financial meltdown were a select few who were involved in structuring the derivatives deals related to the MBS transactions.
Prepayment risk is an important concept to consider in ABS and MBS. Therefore, to deal with prepayment risk, they have tranching structures, which help by distributing prepayment risk among tranches.
FORBES: Introduction To Asset-Backed And Mortgage-Backed Securities
Trying to stimulate the housing market by purchasing additional MBS only postpones the adjustment in housing prices that still needs to occur to bring about a balancing of demand and supply.
FORBES: Ben Bernanke's QE4: Another Step Toward Helicopter Money, And Away From Freedom
Even though the Treasury now explicitly supports Fannie and Freddie, MBS spreads remain wide, owing in part to reduced buying by the companies themselves and by foreign investors, Mr Strand says.
When your MBS or junk bonds are no longer accepted as collateral you have to dig deep into the vault and come up with something that is accepted, like gold or silver.
FORBES: Gold Inches Up As Goldbugs Seek Reasons For Historic Rout
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