The Obama administration is considering selling portions of Fannie Mae and Freddie Mac mortgages as securities without a federal repayment guarantee in its ongoing effort to lure private lenders back into the mortgage market, the Wall Street Journal reported. The unprotected securities would pay a higher interest rate.
If approved, the small pilot programing could be launched next year to include about 5 to 10 percent of loans issued by the federal lenders. It could pique the interest of investors because tighter underwriting standards have yielded safer mortgages since the downturn. Analysts say such a program could draw significant interest from lenders who have been looking to take on some more credit risk with their sizable cash reserves.
If the program were to expand, mortgage rates may finally rise from their record lows as private investors would demand higher returns than the government programs currently provide. [WSJ]