Because Ginnie Mae mortgage-backed securities are backed by the full faith and credit of the U.S. government, investors are not subject to credit losses. However, the potential for non-performing loan buyouts creates an additional layer of prepayment risk. As with any prepayment, investors receive the unpaid principal balance of the loan that goes through buyout. However, for all 30-year pass-throughs with 3% and higher coupons trading above par, any prepayment (due to a buyout or otherwise) represents a loss to the investor.
So how much of a concern are buyouts for investors?