Fannie Mae is starting to prepare investors for the first transaction in which the firm would share the risk of homeowner defaults with bond buyers.
Executives at Fannie Mae, which bought or guaranteed $468 billion of residential mortgages in the first half of the year, were scheduled to discuss its credit-risk management practices on an invitation-only Web conference Tuesday, according to an online posting.
Competitor Freddie Mac sold risk-sharing bonds in July tied to almost $23 billion of home loans being held by the typical securities it guarantees, as regulators seek to reduce the role of the two firms in the market and assess whether they are charging enough for the insurance.
The risk-sharing transactions echo the new system of U.S. mortgage finance envisioned under legislation introduced this year by
With government-backed mortgages accounting for more than 85% of new lending, the FHFA has been directing the companies to raise how much they charge to guarantee their traditional mortgage bonds and asked each to attempt to share risk on $30 billion of home loans this year.
“We are working with FHFA to meet the goals of the Conservatorship Scorecard for 2013,” Callie Dosberg, a Fannie Mae spokeswoman, said in an email.
The company has hired Bank of America Corp. to manage the transaction, said Zia Ahmed, a spokesman for the Charlotte, N.C.-based lender.
Almost 50 different buyers participated in a $500 million offering by Freddie Mac in July, which was managed by Credit Suisse Group AG, according to the issuer. They included mutual funds, hedge funds, real estate investment trusts, pension funds, insurers, banks and credit unions.
The yields demanded on those notes suggests that Fannie Mae and Freddie Mac’s current guarantee fees are “almost priced appropriately” if the government wants to maintain a role in the mortgage market in which taxpayers bear any catastrophic losses, according to an Aug. 23 report by Barclays Plc analysts Sandipan Deb and Nicholas Strand. The charges have roughly doubled since the housing slump to about 0.55 percentage point annually, the analysts said.
The fees would need to rise about 0.1 percentage point to allow bank portfolios to compete for loans, and about 0.25 percentage point for fully private mortgage-bond issuers, the analysts wrote.
Sales of debt known as non-agency mortgage securities froze five years ago amid tumbling home values and soaring defaults, following issuance of $1.2 trillion in each of 2005 and 2006, and then restarted in 2010. Deals tied to new loans total about $10.5 billion this year, up from $3.5 billion in all of 2012, according to data compiled by Bloomberg.
