Come On Guy’s We Can Do Better
OK, we all want Fannie & Freddie reformed, gone, whatever. Now, FHFA and the White House have come up with a scheme to dump the F&F junk mortgage backed securities back on the private market. The only “new” deal is the F&F MBS won’t have the full faith & credit backing of the US Government. To offset the loss of the guarantee, the New Issue F&F MBS would offer a higher interest rate.
Now, let’s follow this brilliant plan put forth by the best and brightest. Take existing F&F MBS and sell them to private investors. Check. We all know that the mortgage pools are JUNK, period.
To offset the non-government backing, we the taxpayer’s are going to offer the investors who are foolish enough to buy this junk, a higher interest rate. Check.
Will investors buy the "New" F&F MBS? Yes, because they are yield hogs. Let’s just hope your pension fund doesn’t fall for this.
Better yet, what happens if the “New” F&F MBS are like the “Old” MBS, you know, uhh… misrepresented as to quality of the underlying asset?( the crappy property) Are investors allowed to demand a “put back” or re-purchase by F&F? Lots of that kind of litigation like that happening as I write.
This is just another derivative scheme. Not a solution to a festering problem.
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