Fannie Getting Ready To Commence Mortgage Risk-Sharing?

Posted by Patrick Barnard on October 14, 2013 No Comments
Categories : Required Reading

Fannie Mae is reportedly gearing up to sell its first notes tied to the risk of homeowner defaults.

According to a Bloomberg News report, the notes will be sold at lower relative yields compared to those offered in Freddie Mac's debut deal.

A $337.5 million, BBB-rated slice of the debt may pay about 2.25 percentage points more than the one-month London interbank-offered rate, an unidentified source who is close to the deal told Bloomberg News. A riskier $337.5 million unrated portion could price at a spread of 5.75 percentage points more than the benchmark.

The deal may be completed as early as next week, according to the report.

Freddie Mac sold similar bonds at spreads of 3.4 percentage points and 7.15 percentage points more than Libor in July.

Sale of the notes is seen by regulators as a means to reduce the dominance of the two government-sponsored enterprises.

Further, the risk-sharing approach could end up playing a central role in the future of the $9.3 trillion U.S. mortgage market.

In related news, last week, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac have formed a joint venture to build and operate a new common securitization platform.

In addition, the FHFA has filed a certificate of formation with the Secretary of State of Delaware, establishing a new company that will develop and operate the platform called Common Securitization Solutions (CSS). The limited liability company will operate as an equally owned subsidiary of Fannie Mae and Freddie Mac.

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