In this case, someone had to eat the “no one has to pay their mortgage in March” part of the stimulus package. Secondly MBS Interest rate risk is not the same. As rates go down, prepayments go up and so you don’t get the benefit of the lower yield.
Here's a article that explains how the MBS players got in trouble and why the Fed thrashed their business model. Your thinking is correct if these were companies like Oil selling $50 a barrel hedges. https://www.google.com/amp/s/www.bl...sk-sec-to-save-them-from-wave-of-margin-calls
Direct link to SeekingAlpha article https://seekingalpha.com/news/3556338-mortgage-bankers-ask-sec-for-rescue-from-margin-call-surge Direct link to Bloomberg article https://www.bloomberg.com/news/arti...sk-sec-to-save-them-from-wave-of-margin-calls Explainer from the comments section of the SA article: https://www.mbshighway.com/mortgage-crisis.html
1. I sell my MBS to the Fed. It said Fed buys MBS? 2. Once sold, I am all cash, sitting pretty in this trying times?