Concerning Principal and Interest on Fannie Mae-sponsored MBS: A. All Principal

Question

Concerning Principal and Interest on Fannie Mae-sponsored MBS:

A. All Principal payments falling due on the MBS are guaranteed by Fannie Mae against default, but Interest payments falling due are not guaranteed

B. All Principal payments falling due on the MBS are guaranteed by Fannie Mae against default, but only some of the Interest payments falling due are guaranteed

C. All Principal payments and all Interest payments falling due on the MBS are guaranteed by Fannie Mae

D. MBS investors could possibly lose some Principal payments if no homeowners in the pool ever choose to prepay their individual mortgage loans

Explanation / Answer

All Principal & Interest payment on MBS are guaranteed by Fannie Mae , though it is not backed by full faith and credit of US Govt, Fannie Mae guarantees to the MBS trust that the trust will have sufficient funds to ensure that investors will receive monthly payments of principal and interest whether or not collected from the borrower.

So option C. is correct..

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