The novelty of prepayment as a primary risk factor is one of the charms MBS have for foreign investors, particularly sophisticated institutional investors. That’s because it has a relatively low correlation factor with other assets.
The re-proposal means the industry can expect extensive revisions. Nevertheless, the FHFA said the move will not affect the timeline for the recap and re-lease of Fannie Mae and Freddie Mac.
Craig Phillips, the former Treasury point man on housing reform, told industry insiders that the recap and release of Fannie and Freddie should “really respect the rights of the current shareholders.”