Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) is following in the footsteps of brother-lender Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) by introducing risk-sharing mortgage bonds to American investors. The instruments are designed to shift some of the risk of a housing crisis from the Government sponsored enterprise to the buyer of mortgage bonds.
The new instrument is in line with legislation about the lenders being discussed in Congress. U.S. politicians are seeking to change the mortgage financing system in the United States so that Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) do not bear the brunt of problems in a mass default situation. When that happened in 2008, the problem was laid at the feet of the American tax-payer.
Housing risk reduction at Fannie Mae
The new risk-sharing bonds will be sold to investors by Fannie Mae in the coming months. The lender hosted a web conference with prospective investors in order to discuss the new instrument today, according to Bloomberg. Freddie Mac sold about $500 million worth of risk-sharing bonds back in July.
The offering of similar bonds from Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) will be handled by Bank of America Corp (NYSE:BAC). The offering will be made as part of a plan from the Federal Housing Finance Agency to see the risks of the mortgage market spread more evenly across investors. 85% of new mortgages in the first half of 2013 were solely guaranteed by wither Freddie Mac or Fannie Mae.
Legislation and litigation
A bill sponsored by Senators Bob Corker and Mark Warner, which was introduced to the upper house in June, would see Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) shuttered. The deal is being supported by Barack Obama and could be bad for shareholders in the two institutions if it is passed by Congress.
Both Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) have been held in conservatorship since the 2008 bailout resulting from the financial crisis. The legislation hopes to reduce the risk of another mortgage crisis to the U.S. taxpayer, though it does not remove Federal presence from the housing market entirely.
Meanwhile shareholders in Fannie Mae, including Fairholme Capital and Perry Capital, have brought lawsuits against the Federal government seeking the return of the control, and the profits, from the institution to those holding its shares. Risk sharing or no risk sharing, the fate of Fannie and Freddie lies in the balance as legislation and litigation seek to change the mortgage market in the United States.
