Mortgage MBS Companies ask SEC to Stop Margin Calls and Fed buying.

ironchef said:
@JesseJamesFinn1, can you explain this:

If I were a mortgage banker or REIT holding mortgage back securities, in the current environment with interest rate falling, my securities should be worth more. Why am I in bad shape unless there are a lot of defaults? And if the Fed is buying my MBS, why should I complain? If it were me, I sell them to the Fed in a heartbeat and laugh all the way to the bank?

OK, so I hedged, meaning bought protections. My protection is now not needed, I should take them off or keep them till expiration and I should be very happy? Like I bought home insurance and my house was safe?

OK, so you say because I borrowed to buy the protections. If I had to borrow to buy the protection, isn't it just bad management and I deserve to be out of business?

As a small time retail trader, I am just too dumb to understand.

Am I making any sense?
More...

In this case, someone had to eat the “no one has to pay their mortgage in March” part of the stimulus package.

Secondly MBS Interest rate risk is not the same. As rates go down, prepayments go up and so you don’t get the benefit of the lower yield.
 
ironchef said:
@JesseJamesFinn1, can you explain this:

If I were a mortgage banker or REIT holding mortgage back securities, in the current environment with interest rate falling, my securities should be worth more. Why am I in bad shape unless there are a lot of defaults? And if the Fed is buying my MBS, why should I complain? If it were me, I sell them to the Fed in a heartbeat and laugh all the way to the bank?

OK, so I hedged, meaning bought protections. My protection is now not needed, I should take them off or keep them till expiration and I should be very happy? Like I bought home insurance and my house was safe?

OK, so you say because I borrowed to buy the protections. If I had to borrow to buy the protection, isn't it just bad management and I deserve to be out of business?

As a small time retail trader, I am just too dumb to understand.

Am I making any sense?
More...

Here's a article that explains how the MBS players got in trouble and why the Fed thrashed their business model. Your thinking is correct if these were companies like Oil selling $50 a barrel hedges. https://www.google.com/amp/s/www.bl...sk-sec-to-save-them-from-wave-of-margin-calls
 
newwurldmn said:
In this case, someone had to eat the “no one has to pay their mortgage in March” part of the stimulus package.

Secondly MBS Interest rate risk is not the same. As rates go down, prepayments go up and so you don’t get the benefit of the lower yield.
More...
1. I sell my MBS to the Fed. It said Fed buys MBS?

2. Once sold, I am all cash, sitting pretty in this trying times?
 
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