>Also: if there was a signifcant default rate on these
>things, the banks wouldn't underwrite them.
This is mistaken. The "banks that underwrite them" don't really bear much risk at all. Most are pooled and securitized as CMOs and pass-throughs by private financiers and, mainly, quasi-federal bodies. Ultimately the risk then is borne by the Treasury (a convenient shorthand for you, me and my grandkids). The short- and medium-term rational thing for the banks to do is write as much of this stuff as possible, even if it ultimately results in generalized economic ruin.
Fannie Mae spreads tightened several basis points across the board last week, 30-year 6.5s excepted. I trust I needn't tell you what effect heavy demand will have on supply.
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