Joe Light for Bloomberg:

“Hedge funds & mutual funds are among bond holders that could lose $2Bn as a consequence of U.S. lawmakers letting millions of homeowners delay their mortgage payments.

At stake are 'credit-risk-transfer securities' whose owners include fixed-income funds run by Franklin Resources & AllianceBernstein Holding LP.

The securities, which threaten to lead to estimated losses of between $1-2BN are intended to shift the risk of borrower defaults on

Fannie Mae & Freddie Mac mortgages to private investors.

The issue is an unintended side effect of the response to the global health crisis.

As the U.S. economy shut down in March, Congress rushed to pass the $2 trillion CARES Act, which included a provision that allowed

forbearance on loans backed by Fannie & Freddie for as long as one year if borrowers were impacted by the pandemic.”

The CARES Act provision for forbearance on Fannie & Freddie mortgages offers a timely reminder that the bulk of U.S. mortgage risk is nationalized."

"This nationalization will be explicit & costly for the U.S. taxpayer.

I am opposed to private sector skimming of “profits” during the good times only to leave skin & bones and worse for when things turn bad.
We’ve seen enough of that."