The Obama administration is slated to release its GSE reform proposal on Friday as previously reported by StructuredFinanceNews.com.

The plan will include the option to create a Federal Deposit Insurance Corp. (FDIC)-like insurance for MBS, published reports said.

The administration's proposal also suggested retaining government guarantees, but only in times of crisis, a Reuters report said. The proposal will also suggest  a third option that leaves the Federal Housing Administration as the only provider of government-backed mortgages.

Bank of America Merrill Lynch analysts said last week in a conference call that a paper on the GSE reform released by the Center for American Progress (CAP) will likely be the format the goverment will follow. In the paper CAP proposed ab  FDIC-like insurance fund and new private entities to guaranty the new government-backed MBS.

"We can envision a scenario where a system such as the CAP proposal gets slowly implemented, with an with an FDIC-like insurance fund, but where Fannie and Freddie are the initial Chartered Mortgage Institutions (CMI) and remain largely intact," they said. " The profits of future GSE business can fund the government backstop and return taxpayer money with interest.

"In addition, raising guarantee fees over time will help fund the insurance fund to a level consistent with the size of the guaranteed MBS market. Higher fees combined with a gradual phase in of lower loan limits would help shrink the GSE share of housing finance and allow for a greater presence of the private securitization market. At the same time, the GSE portfolios would slowly run off and the agencies could focus just on issuing and guaranteeing government-backed MBS, though smaller portfolios would probably be maintained.

The administration will also look to slowly unwind Fannie Mae and Freddie Mac, according to the Reuters report.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.