Investors jittery amid Fannie and Freddie backstop uncertainty

Investors are nervous amid a government plan to overhaul Fannie Mae and Freddie Mac and end the decades-long government conservatorship after the government took control of the firms in the wake of the financial crisis. Some investors worry that elimination of the government guarantee will dissuade financial firms from buying and drive up costs for homebuyers.

Securities traded by the two mortgage behemoths are falling behind those sold by Ginnie Mae, the Wall Street Journal reported. Ginnie Mae mortgage-backed securities traded a penny on the dollar higher than Fannie Mae-backed mortgages last week, the gap widening from four-fifths of a penny in June. As a result, borrowing costs for standard mortgages are higher. Fanny and Freddie are crucial for the 30-year mortgage, which allows homebuyers to make steady payments.

Earlier this month, Mark Calabria said he could support Congress establishing a federal backstop for securities issued by Fannie and Freddie as long as it is “limited, clearly defined and paid for,” the Wall Street Journal reported.

Fannie and Freddie currently have access to $258 billion in federal funding, per their 2008 agreement. Ginnie Mae’s government guarantee is not on the chopping block, so investors see it as a basis for understanding the confidence in Fannie and Freddie’s continued backstop. [WSJ] — Georgia Kromrei