Thomas Wagner

Mortgage REITs: Real Value in a Chaotic Market

Interesting article. What the author fais to understand is that most of these companies are not buying GNMA MBS which have always been a direct obligation of the US govt. They are super leveraging FNM and FRE backed MBS which still are not a direct obligation of the US Govt. The Japanese and Chinese are reevaluating there holdings in this area. I believe the ability of the companies to hedge there underlying portfolio is limited. Anyone familiar with hedging will tell you that if they were to fully hedge the portfolio of underlying MBS any spread or profit would be eliminated. If im right i expect to see a major increase in the spread of FNM, FRE over treasuries as the Chinese use the failure of this administration to clarify there support of these securites.