The Obama administration is looking into ways to support greater private sector involvement in the secondary market for home mortgages.
Officials are weighing a proposal that would allow Fannie Mae and Freddie Mac to sell off portions of their mortgage-backed securities (MBS) to private investors. According to the Wall Street Journal, these MBS carve-outs would not carry a federal guarantee but would pay a higher interest rate.
Today’s mortgage market is dependent on the two GSEs, with Fannie and Freddie funding an estimated nine in 10 new mortgages. The Journal says a small pilot program could be rolled out as early as next year to test private investors’ willingness to pick up some of the slack as the government pulls back its role in the market.
The acting director of the GSEs’ conservator, the Federal Housing Finance Agency alluded to the possibility of shared-risk securities offerings in a speech last month.
FHFA’s Edward DeMarco said there are “numerous securities structures that could be considered” as he criticized policymakers for their lack of action in reducing Fannie and Freddie’s dominance in the U.S. housing market.
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