Fannie and Freddie Floating a Plan to Juice More Private Mortgage Action

From the Wall Street Journal:

The Obama administration and a federal housing regulator are considering a program to draw private investment back into the government-dominated mortgage market by having Fannie Mae and Freddie Mac sell slices of securities that wouldn’t carry a federal guarantee but would pay a higher interest rate than current mortgage-backed bonds…

Officials see it as a step toward reducing the $10.4 trillion U.S. mortgage market’s dependence on government-controlled mortgage companies Fannie Mae and Freddie Mac.

The move would test the willingness of private investors to share the risk of funding home loans that are packaged by Fannie and Freddie. If the program were expanded significantly, it would likely raise mortgage rates over time because private investors would require greater returns than Fannie and Freddie currently do.

Under the pilot program, a small piece—perhaps 5% or 10%—of a bond issued by Fannie or Freddie would be sold without a federal guarantee, according to people familiar with the matter.

This plan for the single-family sector is similar to what Freddie’s done in multifamily:

Mr. Haldeman said the pilot program idea is “still in the talking stage.” Freddie Mac has tried the approach since 2009 with bonds issued to fund multifamily housing developments.

Administration officials say that by getting private investors involved, they will receive feedback on how much Fannie and Freddie should raise the fees they charge to guarantee mortgages. Those fees are expected to increase gradually next year.