Fannie Mae-No Politics (FNMA)

[obiterdictum]

The GSEs handle some of your assumption via guarantee fees (g-fees) and credit risk sharing MBS.

Investors in MBS pay a small monthly percentage of money as a g-fee to Fannie or Freddie in exchange for a guarantee that they will get paid in a timely manner the contracted MBS principal and interest even if the mortgage borrowers do not pay their principal and interest. So Fannie Mae or Freddie Mac will send a principal and interest payments to the investor so they do not lose the MBS income. In this way, Fannie and Freddie are the MBS issuers and guarantors.

In a cooperative reform plan, the GSEs stop being GSEs, and all that is needed is to increase the amount of the g-fee (as DeMarco was doing) and place the GSEs g-fees received in an insurance fund separate from the GSEs and use it exclusively as an explicit government guarantee backstop. What this means is that instead of the g-fees accumulating in the GSEs as part of income and net profit and then as dividends to private shareholders, the fees would be transferred to a separate or external or insurance fund.

This could be made like the FDIC that is funded by insurance premiums of banks and thrift institutions and by its own investments. The GSEs could become MBS securitizers and make money selling MBS and doing what it ordinarily does and the explicit government guarantee aspect would be handled by a new government owned and operated insurance fund paid for exclusively by g-fees or the "premiums" of mortgage originators, MBS issuers and investors.

Credit risk sharing MBS, a recent fiscal path taken by the GSEs under DeMarco, is another way to offload credit risk to non-government institutions and investors. See: http://www.fanniemae.com/portal/funding-the-market/credit-risk/

Is Waters treading in these waters?

Me no know.