By Bruce Krasting (Guest Post)
For me, the most significant development from the Fed’s announcement is a change in policy where the Fed will re-invest proceeds of maturing Mortgage-Backed Securities (MBS) in new issues of Agency MBS paper. Prior to today, the Fed re-invested principal repayments in Treasury bonds. I wrote about the possibility of a mega mortgage ReFi by Fannie and Freddie punishing the savers. I (and many readers) pointed to an obvious flaw in the ReFi story. If a Trillion or so of mortgages were rapidly prepaid, then who would buy all of the new (much lower coupon)…
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