In downgrading Schwab, Goldman analysts cited a decline in yields on residential mortgage backed securities (RMBS) issued by Fannie Mae (FNMA)and Freddie Mac (FMCC) following the Federal Reserve's announcement last week that it would buy long-dated RMBS in an effort to boost the housing market.
So called "agency" RMBS make up 70% of Schwab's securities portfolio, according to Goldman, and the decline in yields may encourage pre-payments and "headwinds" in net interest margins. Net interest margins refers to the difference between a company's cost of capital and the rate it earns through lending.
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