How is this statement incorrect?

“I’m concerned because securities created by SOME non-agency issuers have lower credit ratings than those issued by Fannie and Freddie.” I mean WTF I would expect this from Schweser, but this was on one of the damn sample exams!

credit enhancements…

^ i think the problem is that they ALL do (because agency issues are risk-free) you got schwesed adavydov7

wait credit rating or credit risk?

Who the hell cares about credit enhancements. You mean to tell me that ALL non-agency issues have credit ratings equal to or greater than GSE backed ones? That’s fing ludicrous!

which exam is this

CFA sample, which is why I am so concerned! Sample 2 question 17.

Credit ratings.

seriously… that’s stretching it. they should have said “RARE CASES” instead of “SOME” and then that statement will be true.

wow i was way off yeah that’s messed up

i think the point was that the manager should not be concerned… Why worry about non agency vs agency if you can use credit enhancements to achieve your desired risk

@CFA: point or not, it doesn’t make the statement of the manager (which the institute quotes in the vignette) incorrect.

I too had exactly the same problems on the same questions you had adavydov. In one place they talk of credit rating and another place about credit risk… which seemed weird and out of place. The answer location link in the text book is pointing to something that is not connected with the statement made by the manager.

I see your point, i dont really liek to stick up for CFAi… dont really remember if i got this right or not… a lot of times there explanations are very ambiguous and subjective… I dont know that there is a good answer to your question

Like I said earlier i was hoping to lose this ambiguity once I switched to actual CFAI material (from Schweser) but I guess that was too much to ask. If they give us crap like this on the exam I am going to be pissed if it causes me to lose points on subjects I know dead!

I’m somewhat confused what is ambiguous about this. It’s wrong because ALL non-agency backed bonds have a lower rating, not SOME.

should br credit risk. With credit ratings, it doesnt make any sense. It should always and all and not SOME have lower credit rating.

Sorry guys, but how does that not make sense? IN THEORY all agency backed bonds should have the lowest credit risk and highest credit rating. The question seems very clear.

they are asking about non-agency (whole loans)

I still have absolutely no idea what your point is. Fannie and Freddie have the highest credit rating and lowest credit risk, bar none, no questions asked.