Are all mortgage-backed securities the same?

Agency MBS, issued by Fannie Mae, Freddie Mac, or Ginnie Mae, carry implicit or explicit government guarantees and dominate the market. Non-agency securities—often called private-label—pool loans without such backing and vary widely in underwriting standards. Ginnie Mae securities back loans with federal guarantees like FHA or VA, while Fannie and Freddie MBS guarantee payment of principal and interest even if borrowers default.

Private-label deals typically use tranching to segment risk: senior layers offer safety with lower returns, while equity tranches absorb first losses but promise higher yields. Disclosure requirements differ significantly—agency MBS follow standardized formats under SEC Rule 17a-5, while non-agency offerings rely on private placement memorandums with less consistency in reporting.

Investors choose based on capital mandates and risk tolerance. Pension funds often stick to agency due to liquidity and regulatory alignment, while hedge funds may pursue non-agency for yield enhancement—provided they can model prepayment and default behavior. Transparency around underlying loan-level data has improved but remains uneven outside agency markets.