What Are Non-Agency Mortgage Backed Securities (MBS) And Should I Invest In Them?
Author:
Melissa BrockMay 16, 2023
•5-minute read
Think you might want to invest in real estate but not sure if you want to rent an actual house or apartment complex? Non-agency mortgage-backed securities (non-agency MBS) offer another way to invest in real estate without actually having to maintain actual property.
Let's dive into the details of non-agency MBS to help you decide whether you want this type of investment to have a place in your passive income investing strategy.
What Are Non-Agency MBS?
Fannie Mae and Freddie Mac, government-sponsored enterprises (GSEs) purchase mortgages that conform. These become agency MBS; those that don’t conform get purchased by private banks or private entities and become non-agency MBS, also called private-label securities.
Since the 2008 recession, a great divide has existed between mortgages that conform to the standards set by regulatory agencies like the Consumer Financial Protection Bureau (CFPB) and mortgages that don’t conform.
The rapid growth in the non-agency MBS market contributed to the 2008 recession because it ultimately catered to less creditworthy borrowers. As a result, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act created major changes to how creditors offer loans. It also included new ability-to-repay requirements, which protect all consumers from taking on loans they don’t have a way to pay back.