U.S. trade group calls for fund to back mortgage bonds

Creation of a fund that provides a government guarantee on mortgage-backed securities would help promote competition in the U.S. housing finance market, the Mortgage Bankers Association said on Tuesday.

Such a fund offering an explicit federal guarantee would ensure the timely payment of principal and interest in the event one or more of the private insurers that would compete with mortgage agencies Fannie Mae and Freddie Mac fails, the Washington-based trade group said.

"The U.S. mortgage market requires global capital in order to maintain adequate liquidity through all economic cycles. International and institutional investors will only fill that role if there is an explicit government guarantee on the securities, something that can only be obtained by congressional action," MBA Chairman Rodrigo Lopez said in a statement.

The private mortgage guarantors proposed by MBA would be organized like utilities with a regulated rate of return. They would be chartered to buy qualified single-family and apartment loans and issue bonds backed by these mortgages with a government guarantee, MBA said.

Fannie and Freddie charge mortgage lenders a fee to guarantee the loans they make to home buyers.

The proposal for the fund for MBS was part of MBA"s white paper on its recommendations for mortgage finance market reform with the goal of ending the government"s conservatorship of Fannie and Freddie.

The two mortgage agencies, since they were rescued in 2008, have operated under the conservatorship but are now profitable again and have returned more than $240 billion to federal government coffers.

(Reporting by Richard Leong; Editing by Meredith Mazzilli)

U.S. trade group calls for fund to back mortgage bonds
U.S. trade group calls for fund to back mortgage bonds
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