The Federal Housing Finance Agency on Thursday admitted that it has contemplated allowing the GSEs to unload their nonperforming and modified loans in the secondary market, but at this time has no plans to act on it. 

Testifying before a Congressional panel, Federal Housing Finance Agency acting director Edward DeMarco noted that modified loans are difficult to sell and the agency would probably use a risk-sharing structure to move the loans off the GSEs' books.

DeMarco also noted such sales could be coordinated with Congress' effort to reduce the GSEs' giant mortgage portfolios.  Such sales could be "part of a transition mechanism worked out with the Congress," the regulator told the House Financial Services Committee on Thursday. 

As Fannie and Freddie's conservator, FHFA has the authority to lower their loan limits.  But DeMarco noted that Congress has traditionally set the loan limits. "For me to make a change as a regulator — I would really want to think hard about that," he testified.  Committee Republicans want to lower the GSE loan limits to make room for private lenders to make jumbo loans.

DeMarco also told the panel that principal reductions may make more sense for private-label securities but not GSE mortgage-backed securities. "The vast majority of the enterprises' underwater mortgages continue to perform and it is our expectations that the borrowers will continue to honor their financial commitment," he said.   

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