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Fannie Mae Prepares Investors for Mortgage Risk-Sharing Bonds

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Sept. 4 (Bloomberg) -- Fannie Mae, the government-controlled mortgage-finance company, is starting to prepare investors for the first transaction in which the firm would share the risk of homeowner defaults with bond buyers.

Executives at Washington-based Fannie Mae, which bought or guaranteed $468 billion of residential mortgages in the first half of the year, will discuss its credit-risk management practices on an invitation-only web conference for investors that was set to start at 12:30 p.m. today, according to an online posting.

Competitor Freddie Mac sold risk-sharing bonds in July tied to almost $23 billion of home loans being held by the typical securities it guarantees, as regulators seek to reduce the role of the two firms in the market and assess whether they are charging enough for the insurance.

The risk-sharing transactions echo the new system of U.S. mortgage finance envisioned under legislation introduced this year by Republican Senator Bob Corker of Tennessee and Democratic Senator Mark Warner of Virginia, and endorsed by President Barack Obama. The Federal Housing Finance Agency has overseen Fannie Mae and Freddie Mac since they were seized in 2008 amid the worst housing slump since the Great Depression.

With government-backed mortgages accounting for more than 85 percent of new lending, the FHFA has been directing the companies to raise how much they charge to guarantee their traditional mortgage bonds and asked each to attempt to share risk on $30 billion of home loans this year.

“We are working with FHFA to meet the goals of the Conservatorship Scorecard for 2013,” Callie Dosberg, a Fannie Mae spokeswoman, said in an e-mail.

Guarantee Fees

The company has hired Bank of America Corp. to manage the transaction, said Zia Ahmed, a spokesman for the Charlotte, North Carolina-based lender.

Almost 50 different buyers participated in a $500 million offering by Freddie Mac in July, which was managed by Credit Suisse Group AG, according to the issuer. They included mutual funds, hedge funds, real-estate investment trusts, pension funds, insurers, banks and credit unions.

The yields demanded on those notes suggests that Fannie Mae and Freddie Mac’s current guarantee fees are “almost priced appropriately” if the government wants to maintain a role in the mortgage market in which taxpayers bear any catastrophic losses, according to an Aug. 23 report by Barclays Plc analysts Sandipan Deb and Nicholas Strand. The charges have roughly doubled since the housing slump to about 0.55 percentage point annually, the analysts said.

The fees would need to rise about 0.1 percentage point to allow bank portfolios to compete for loans, and about 0.25 percentage point for fully private mortgage-bond issuers, the analysts wrote.

Sales of debt known as non-agency mortgage securities froze five years ago amid tumbling home values and soaring defaults, following issuance of $1.2 trillion in each of 2005 and 2006, and then restarted in 2010. Deals tied to new loans total about $10.5 billion this year, up from $3.5 billion in all of 2012, according to data compiled by Bloomberg.

To contact the reporters on this story: Jody Shenn in New York at

To contact the editor responsible for this story: Alan Goldstein at

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