Friday, October 14, 2011

Creative planning but ...

There are new developments between the Obama administration and a federal housing regulators who are considering a program to draw private investment back into the government-dominated residential 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.

No decisions have been made, but officials believe a small pilot program could be rolled out sometime next year, according to people familiar with the matter.

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. If the leadership in both groups believe this model would keep US residential mortgages affordable, we're all for it. However, we fear what this same leadership has not factored in is the "dramatic" increase private money would require in rate to not have government guarantee. The margins just aren't attractive to the everyday commercial investor and without attractive margins, rates to the consumer will surely rise.