The acting director of the Federal Housing Finance Agency told a Senate panel this morning that the agency is moving ahead with "private" risk sharing opportunities between Fannie Mae/Freddie Mac and firms outside of the government's control.
Although acting FHFA director Edward DeMarco provided no details in his written testimony, mortgage bankers familiar with the plan say it entails the GSEs selling "credit securities" of which a small portion (up to 10% of the bond amount) would be offered to investors but with non-government guarantee.
Sources told National Mortgage News that the program is far along and that Freddie Mac likely would issue such a subordinated bond some time in the first quarter of 2012. (Fannie Mae is working on a similar type of security.)
But investors note that it's unclear what type of yield such a subordinated bond would have to carry to entice buyers.
By issuing credit securities, FHFA would be moving Fannie and Freddie into a guarantee model where the private sector -- and not the GSEs -- is in a first loss position when it comes to (potentially) riskier loans.
Investors in such securities might include hedge funds, investment banking firms, REITs and insurance companies.
In his testimony before the Senate Banking Committee DeMarco noted that FHFA has forced Fannie and Freddie to hike its guarantee fees over the past year -- and that even more increases are on the way in the months ahead.
"We will continue to gradually increase guarantee fee pricing to better reflect that which would be anticipated in a private, competitive market," DeMarco said. "Such steps are consistent with actions already taken in conservatorship and we are examining further options along these lines in support of a stable transition over time."
