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Fannie, Freddie Should Issue Interchangeable Bonds, MBA Says

Fannie Mae and Freddie Mac should work toward issuing interchangeable mortgage-backed securities, said David Stevens, the head of the Mortgage Bankers Association.

Taking the step would increase the liquidity of Freddie Mac bonds, boosting their prices, and protect securities from both government-backed companies as volumes decline once interest rates rise, Stevens said today at a conference in New York hosted by the group. A common security could also be used as the mortgage-finance market is reformed, he said.

“It creates an opportunity for transition,” Stevens said.

The Federal Housing Finance Agency, the overseer of Fannie Mae and Freddie Mac, has made exploring ways to combine the firms’ securities among goals for their executives this year. The companies, which guarantee about $4 trillion of mortgage-backed notes, were seized by the U.S. in 2008.

“It’s still quite a ways away,” Paul E. Mullings, senior vice president of single-family sourcing and securitization at Freddie Mac, said during a speech at the conference. “We at Freddie Mac still have a lot of questions around the scope and scale of this initiative. Right now, we’re assessing the pros and cons of various approaches.”

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