Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) is set to issue its first sale of risk sharing bonds, with better terms than Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s July offering.

Fannie Mae

Jody Shenn of Bloomberg citing known sources indicate Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) is planning to sell $675 million of the bonds at lower yields than Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s $500 million.

Fannie Mae and Freddie Mac’s regulatory mandate

Both the mortgage giants are issuing the bonds to meet regulator, the Federal Housing Finance Agency’s mandate to reduce the cost of default to U.S. taxpayers.

The U.S. government has put both the government sponsored enterprises (GSEs) into conservatorship almost five years ago.

Earlier, Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va introduced a bipartisan Senate bill to replace the FHFA, the conservator of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) with a government agency, the Federal Mortgage Insurance Corporation.

The Corker-Warner Housing Finance Reform and Taxpayer Protection Act introduced on June 25, 2013, would strengthen America’s housing finance system by replacing the GSEs, Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac with a privately capitalized system that preserves market liquidity and protects taxpayers from future economic downturns.

The bill recommends winding down Fannie Mae, Freddie Mac and the FHFA within five years of bill passage.

Investors’ willingness for riskier debt

Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA)’s proposed issue of risk sharing bonds comes amidst private investors showing increasing preference towards accepting riskier debt in the past year, with housing market experiencing rebound.

However, some investors expressed their concern to judge risks of loans purchased by Fannie Mae for want of detailed loan data. Fannie Mae is, however, trying to assuage their concern by pledging in a presentation that its future deals, known as Connecticut Avenue Securities Series, will include its “strongest performing book of business”.

Besides, to broaden the investors profile, Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) is also seeking credit rating, with the senior of the two offered tranches is expected to get the lowest investment grade rating of BBB- from Fitch Ratings.

Bank of America Merrill Lynch unit along with Credit Suisse Group A G (ADR) (NYSE:CS) would be jointly managing underwriting of Fannie Mae’s bonds.

For its July offering, Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) priced its two tranches at 3.4 percentage points and 7.15 percentage points above the one-month London Interbank Offered Rate.