If the portfolio performs, the investor will keep it, but on the other hand if the portfolio does not perform (ala too many properties are defaulting) the investors may execute this option. The other problem is if the investor needs cash and wants to sell their performing MBS to another buyer, these buyers may balk due to the bad PR, thus the investors may decide to exercise the put back option on the banks if such sales fail. The other issue for investors is the price they paid for the MBS was based on a AAA rating. They could have paid less for the risks they are taking, that is why many are using put back to get their money back so they can invest in other financial products with proper price to risk. Ironically Freddie Mac and Fannie Mae under pressure from Congress to keep their liabilities low are one of the biggest put back exercisers of MBS.
Thanks for expanding on this.