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[Be Here Now]

(04-10-2015, 08:06 PM)hendi_alex Wrote: There are twp problems with that scenario. First the resets always trail the rise in short term borrowing rates. Some times short borrowings and long term rates invert, so no resets then. During rising rates there may also be lots of refi's into fixed rate, and those prepays kill the portfolio held by the MREIT. Quite a few really good ARMs lenders went under or very nearly went under during the last rising rate cycle. Resets and hedges were almost no help. IMH, NFI, TMA were considered by many to be among the best of the breed. TMA is gone and NFI and IMH are less than 1/10 of their former value.

CMO is 100% agency ARMs, so there is no default risk, thus no risk of failure.