Private mortgage insurance companies and mortgage REITs are willing to take first-loss positions on government-backed MBS, according to Mortgage Bankers Association chief executive David Stevens.

“We know private capital is sitting on the sidelines—dying to jump in,” Stevens said Wednesday.

The mortgage insurers have recapitalized, Stevens said. “Mortgage REITs have a lot of private capital and they would love to take the first-loss pieces,” he added.

Speaking at an American Enterprise Institute forum, the MBA executive stressed that the MIs could take a first-loss position on Fannie Mae and Freddie Mac loans of up to 40% to 50% of the loan amount.

The GSE mortgage-backed securities would still carry a government guarantee. But the MBA’s recommendation would substantially reduce the government’s risk—since the government guarantee would not come into play unless the MI company goes bankrupt.

The MBA will be rolling out other risk-sharing structures over the next few weeks that the Federal Housing Finance Agency could implement, Stevens said. Legislation is not needed.

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