The AI (ChatGPT) Bond Investing Handbook: Agency RMBS

Here is the response from ChatGPT for the prompt RMBS agency entered on February 25, 2023.

Agency RMBS (Residential Mortgage-Backed Securities) are securities that are created by pooling together a group of residential mortgages and then selling securities based on the cash flows generated by those mortgages. These mortgages are typically insured or guaranteed by government-sponsored entities such as Fannie Mae, Freddie Mac, or Ginnie Mae.

The agency RMBS market is a significant part of the overall mortgage-backed securities market. These securities are generally considered less risky than non-agency RMBS, which are backed by mortgages that are not insured or guaranteed by government-sponsored entities. As a result, agency RMBS typically have a higher credit rating and are more liquid than non-agency RMBS.

Investors in agency RMBS receive payments based on the principal and interest payments made on the underlying mortgages. These payments are passed through to investors in the form of interest and principal payments on the securities. Investors can also buy and sell agency RMBS on secondary markets, which helps to increase liquidity.

Overall, agency RMBS provide investors with an opportunity to invest in a diversified pool of residential mortgages while also receiving a steady stream of income from the interest and principal payments on those mortgages.