The AI (ChatGPT) Bond Investing Handbook: Non-Agency RMBS

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

Non-agency RMBS (Residential Mortgage-Backed Securities) are securities that are created by pooling together a group of residential mortgages that are not insured or guaranteed by government-sponsored entities such as Fannie Mae, Freddie Mac, or Ginnie Mae. Non-agency RMBS are also known as "private-label" or "jumbo" RMBS.

Non-agency RMBS are generally considered to be riskier than agency RMBS, as they are backed by mortgages that do not have the same level of government support. These mortgages may be issued to borrowers with lower credit scores, or they may be for properties that are considered riskier, such as vacation homes or investment properties. As a result, non-agency RMBS typically have lower credit ratings and are less liquid than agency RMBS.

Investors in non-agency RMBS receive payments based on the principal and interest payments made on the underlying mortgages, similar to agency RMBS. However, because these securities are considered riskier, they may offer higher yields to compensate for the additional risk.

Non-agency RMBS can be bought and sold on secondary markets, but they are generally less liquid than agency RMBS. Additionally, because these securities are backed by mortgages that do not have government support, they may be subject to greater risks, such as higher default rates during economic downturns.

Overall, non-agency RMBS provide investors with an opportunity to invest in a pool of residential mortgages that may offer higher yields, but also come with higher risks than agency RMBS. Investors should carefully consider the risks and rewards of non-agency RMBS before investing in them.