Connect with us

Hi, what are you looking for?

The American GeniusThe American Genius

Economic News

Could private sector risk sharing save the housing market?

Potential change of plans

The Obama Administration has struggled with how to address the mortgage crisis and this month, we reported that leading House Democrats are suggesting that the FHFA (which regulates Fannie Mae and Freddie Mac) Edward DeMarco step down because they are “infuriated” that during his recent briefing of 17 House Democrats, he revealed that the FHFA doesn’t have a plan yet for fixing the housing crisis or helping struggling homeowners.

The tune has changed on The Hill in short order and the Administration now says they are experimenting with ways of getting private investors interested in taking on more risk by having Fannie Mae and Freddie Mac sell some bonds without a federal guarantee, sources familiar with the plan tell Reuters.

The idea is that if private firms are more involved in the housing finance system, given that 90 percent of all new mortgages are funded through the FHFA, the companies could stay afloat and ultimately save taxpayers money.

Various options to lure investors

Currently, Fannie and Freddie buy mortgages from lenders, repackage the loans and sale to investors as securities, charging fees to guarantee the debt, but under the new proposal, some bonds would lack a federal guarantee and investors would receive a higher return for their higher risk. Reuters notes that this is just one idea, that the White House may consider other ways to get investors to assume more credit risk in the mortgage market including using derivatives or pushing for greater mortgage insurance coverage for loans underlying the bonds.

Advertisement. Scroll to continue reading.

The plan will require FHFA approval and the administration indicates it will begin testing ideas to spur private sector investment as early as 2012.

Written By

Marti Trewe reports on business and technology news, chasing his passion for helping entrepreneurs and small businesses to stay well informed in the fast paced 140-character world. Marti rarely sleeps and thrives on reader news tips, especially about startups and big moves in leadership.

13 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

Advertisement

The
American Genius
news neatly in your inbox

Subscribe to our mailing list for news sent straight to your email inbox.

Advertisement

KEEP READING!

Business News

We all know and love the company NASA for their space exploration efforts, but how much of an economic impact do they have? Turns...

Business Finance

Another large spike in the consumer price index isn't good news for the economy, and the context of the data is more complicated this...

Business Finance

With a second consecutive quarter of declining GDP data, we are officially in a recession - are we?

Business News

(BUSINESS NEWS) Heads up! Your beloved adult beverage of choice may be getting pricier now that COVID inflation abounds.

The American Genius is a strong news voice in the entrepreneur and tech world, offering meaningful, concise insight into emerging technologies, the digital economy, best practices, and a shifting business culture. We refuse to publish fluff, and our readers rely on us for inspiring action. Copyright © 2005-2022, The American Genius, LLC.