It's careful, it's complicated, it's got a catchy name, and it's first. America, meet the MCGE, and yes, that's pronounced McGee, and perhaps aptly, as it aims to provide fast food for hungry investors who are currently quite risk averse when it comes to buying pools of mortgages.
Simply put, the MCGE buys mortgages from banks, pools them into securities, pays an insurance premium to a new government fund and then sells them to investors with government guarantees against the default of those securities. So the investors take the interest rate risk but they are not taking a credit risk.
The MCGE takes the credit risk, but the new insurance fund guarantees the principal and interest payment on the mortgage securities should something bad happen at the MCGE.
Source: www.cnbc.com
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