--- title: "Agency Mortgage-Backed Securities: definition, formula, and thresholds" description: "Agency MBS are mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. They carry minimal credit risk (US government or GSE backing) but full interest-rate and prepayment risk." canonical_url: https://www.bankregreports.com/glossary/agency-mbs/ source: BankRegReports category: "Securities & Investments" units: "$" schedule: "Schedule RC-B" --- # Agency Mortgage-Backed Securities > Agency MBS are mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. They carry minimal credit risk (US government or GSE backing) but full interest-rate and prepayment risk. ## Formula ``` Agency MBS = Pass-throughs + CMOs + Stripped MBS issued by Fannie/Freddie/Ginnie ``` Banks report Agency MBS holdings on Schedule RC-B in three subcategories: GNMA pass-throughs (full US government guarantee), FNMA/FHLMC pass-throughs (GSE guarantee, market-implied government backing post-2008 conservatorship), and CMOs / stripped MBS issued or guaranteed by the same entities. ## Why it matters Agency MBS is the single largest holding in most US bank securities portfolios, the market exceeds $9T outstanding. Minimal credit risk and low risk weights (20% for Fannie Mae and Freddie Mac MBS, 0% for Ginnie Mae) make agency MBS the default reach-for-yield trade above cash. The same securities drove the AOCI losses that helped sink SVB in 2023 because their duration was longer than banks modeled. ## How to read it Agency MBS / Securities Portfolio above 60% signals heavy duration concentration. Above 80% (rare) indicates a securities book run as a rate-spread trade. The right comparison is not absolute share but unrealized loss/gain. Agency MBS shares of 70% are fine if portfolio duration is short. ## Thresholds | Range | Reading | What it means | |---|---|---| | < 30% | Light | Diversified portfolio across security types. | | 30–60% | Typical | Standard US bank securities composition. | | 60–80% | Heavy | High prepayment & duration concentration. | | > 80% | Concentrated | Securities book operates as a rate-spread trade. | ## Worked example A $5B community bank reports $800M of agency MBS against a $1.0B total securities portfolio, 80% agency MBS concentration. If duration is 5 years and rates rose 100bps year over year, the portfolio would show roughly $40M of mark-to-market decline; the AOCI burden depends on how much flows through capital. ## Questions ### Are agency MBS truly credit-risk-free? Practically yes. GNMA carries full faith and credit of the US government. FNMA and FHLMC are in federal conservatorship since 2008; market pricing treats their guarantees as government-backed, supported by the Treasury's preferred stock purchase agreements, though they do not carry the full faith and credit of the United States. ### Why is prepayment risk material on agency MBS? When mortgage rates fall, borrowers refinance, returning principal to investors who must reinvest at lower yields. When rates rise, prepayments slow and the bank holds longer-than-modeled assets when the bank needs duration to be short. Both directions are bank-unfriendly. ### How did agency MBS contribute to the 2023 bank failures? Many small and regional banks loaded up on long-dated agency MBS during 2020-2021 at sub-2% yields. When rates rose to 5%+, mark-to-market losses ranged from 15% to 25% of the portfolio. At SVB, the March 8, 2023 sale of about $21B of AFS securities at a $1.8B loss set off the depositor run. First Republic's losses sat mainly in fixed-rate jumbo mortgages, and Signature's run followed its concentration in crypto-sector deposits. ## Sources - [FFIEC Call Report Schedule RC-B (Securities)](https://www.ffiec.gov/sites/default/files/data/reporting-forms/FFIEC031_FFIEC041_202606_i.pdf) (PDF) - SIFMA US Mortgage-Backed Securities Statistics ## Related metrics - [Mortgage-Backed Securities](https://www.bankregreports.com/glossary/mortgage-backed-securities/): Mortgage-backed securities (MBS) are bonds backed by pools of home loans. Banks hold mostly agency MBS (guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae), which carry low credit risk but significant interest-rate and prepayment risk. - [Available-for-Sale Securities](https://www.bankregreports.com/glossary/afs-securities/): Available-for-sale (AFS) securities are bonds a bank may sell before maturity for liquidity or balance-sheet management. They are carried at fair value, and their unrealized gains and losses flow through accumulated other comprehensive income (AOCI) into equity. - [Held-to-Maturity Securities](https://www.bankregreports.com/glossary/htm-securities/): Held-to-maturity (HTM) securities are bonds a bank intends and is able to hold until they mature. They are carried at amortized cost (not fair value) so unrealized price changes do not flow through earnings or capital while the bank holds them. - [AOCI Burden](https://www.bankregreports.com/glossary/aoci-burden/): AOCI Burden measures unrealized losses on available-for-sale and held-to-maturity securities relative to a bank's total equity capital. It quantifies the gap between book equity and 'mark-to-market' economic equity, the issue that brought down Silicon Valley Bank in 2023. ## About this document This is the markdown twin of the page named in `canonical_url` above. Source filings are public record; the cleaning, normalization, cross-source linkage, and derived metrics are BankRegReports' own. Attribute with a link to the canonical URL. Markdown twins are published for editorial content only. Institution data pages do not have them. For data at scale use the API, which is documented at https://www.bankregreports.com/api/ and specified at https://www.bankregreports.com/openapi.json. It returns typed JSON with explicit units and periods, and one call replaces hundreds of page fetches. ## Sitemap - [Glossary](https://www.bankregreports.com/glossary/): every metric, with formula and thresholds - [Blog](https://www.bankregreports.com/blog/): analysis and explainers - [API documentation](https://www.bankregreports.com/api/): the programmatic way to get this data - [XML sitemap](https://www.bankregreports.com/sitemap.xml): the complete crawlable index