Financial Firms Bypass Fannie Mae and Freddie Mac, Increase Private-label MBS: Report

By Jessica Guerin

Private investors are buying non-conforming mortgage loans – which are usually the domain of Fannie Mae and Freddie Mac – at a growing rate.

Firms including Chimera InvestmentRedwood TrustJPMorgan Chase and Flagstar Bancorp are issuing these private-label securities, removing Fannie and Freddie as the middleman and assuming some of the risk on their own in exchange for a chance at greater profits.

“In the last year or so, investors have proven increasingly willing to forgo the government backstop and buy private mortgage bonds, indicating they have grown more comfortable taking risk for more potential return,” the article stated. “The fact that more investors want to buy these securities means banks and other firms can package these deals more profitably, which in some cases lets them offer better bids than the agencies.”

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