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Luring investors to mortgages

By Judy Martel · Bankrate.com
Wednesday, October 10, 2012
Posted: 6 am ET

The government wants out of the mortgage business and has been trying to make it more attractive for private money to get in the game. But one initiative is hitting a snag.

According to The Wall Street Journal, government-controlled agencies Fannie Mae and Freddie Mac are having trouble issuing a new class of mortgage securities, which were supposed to be out by the end of September. Risk-sharing bonds, as the new securities are named, will lure investors with a higher yield due to their increased risk if borrowers default.

However, new regulations of the 2010 Dodd-Frank Act are stalling the issue. Dodd-Frank gives regulators more power over interest-rate swaps. Depending on how these new securities are structured, they could fall under the regulation of the Commodity Futures Trading Commission, leading to higher costs due to additional compliance requirements.

A spokeswoman for the Federal Housing Finance Agency, which oversees Fannie and Freddie, told The Wall Street Journal that they are working out the details and expect to continue making progress.

In a separate move affecting investors, the government is pumping more liquidity into the mortgage market as the Federal Reserve commences its third round of quantitative easing. That's making mortgage lenders attractive to investors, according to an analyst who spoke to CNBC ahead of this week's earnings reports. As the housing market moves toward recovery, more homeowners will be able to refinance into historically low rates, the analyst said, making the lenders more profitable.

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