It's no secret that Fannie Mae and Freddie Mac are actively engaged in risk-sharing partnerships tied to their multifamily programs, but money-wise it amounts to a hill of beans.

The golden chalice of risk sharing lies within their bread-and-butter single-family programs where the two backstop $5.2 trillion of mostly residential loans with their government guarantees. The private sector — including several insurance conglomerates, megabanks, Wall Street firms and even REITs — are well aware of this. And quite frankly they wouldn't mind a piece of the action, provided that the Federal Housing Finance Agency (FHFA) comes up with some type of blueprint.

Acting FHFA director Edward DeMarco has spoken of single-family risk sharing on several occasions over the past year — making a nod to the mortgage insurance sector — but never in much detail.

Since early this year the agency has supposedly tasked both GSEs to put their thinking caps on and come up with a plan. A timeline DeMarco provided to Congress in March targets September as the date for the first single-family risk-sharing deals.

But the question boils down to this: What will Fannie and Freddie come up with and will it be profit-enticing enough for the private sector jump on board?

One secondary market executive who's familiar with the effort—and who spoke only on the condition his name and firm not be published—said the way things stand today Freddie Mac (for example) might buy $100 million in loans and then issue an MBS with split guarantees.

Instead of taking on all the risk itself, Freddie would create a senior security for $95 million and a subordinated piece for $5 million. The investor in a subordinated tranche would suffer the first wave of losses should they occur. Of course, the obvious question is this: What type of return would Freddie have to promise on the "sub" piece to entice investors? Answer: 12% to 14%.

Anyone familiar with mortgages knows that such a return would drive up the cost of credit for the consumer. And that's the problem with risk-sharing arrangements: Everyone wants the government to lay off risk but they don't realize that in the end it means higher rates for homebuyers.

Well, so be it. If the FHFA and Congress truly want Fannie and Freddie to deleverage someone has to pay for it. In the end it's always the consumer.

Some mortgage executives note that new MBS structures might only be the tip of the iceberg in the risk-sharing debate. If Fannie and Freddie can create successful new MBS structures where the private sector takes the first loss exposure, why not auction off pieces of their existing portfolios, selling that risk, which is the aforementioned $5.2 trillion?

Meanwhile, a division of the U.S. Treasury is working on a new white paper that talks about both risk sharing and creating an entirely new secondary marketing apparatus for the U.S. housing market.

Will the white paper see the light of day before the November elections? Supposedly, the White House doesn't want housing (mortgages) to be an issue in the fall campaign, but Washington is known to leak. In the meantime, Freddie Mac is once again reporting profits (before dividend payments to Treasury are deducted), so who knows — maybe Congress will just leave the two GSEs alone. But don't bet on that one.

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