Question

1.    Which of the following is TRUE of “private-label” mortgage backed securities?

1. They are issued by the government-sponsored enterprises: Fannie Mae, Freddie Mac, and Ginnie Mae
2. They have a guaranteed return
3. Non-conforming mortgage loans (i.e., loans ineligible for Agency MBS) may provide collateral for these securitizations
4. Only the equity tranche is rated by a credit rating agency

Answer 1

Option C is true.

"Private-label" MBS are securitized mortgages that do not conform to the criteria set by the govt entities Freddie Mac, Fannie Mae and Ginnie Mae. They rely on credit rating agencies to instill confindence in investors to invest in them. They are inherently risky as for them non-conforming mortgage loans (i.e., loans ineligible for Agency MBS) provide collateral. Thus they cannot have a gauranteed return also

Kindly reach out for further clarifications