The Federal Housing Finance Agency should require the government-sponsored enterprises to purchase loans with "deeper levels of credit enhancement (via mortgage insurance, lender recourse or capital market investors) in exchange for bona fide reductions in guarantee fees and other loan level charges," the Mortgage Bankers Association said in a new white paper released Monday.

This would force the mortgage insurers to compete for business at the lender level instead of negotiating with just Fannie Mae and Freddie Mac. And lenders would be "de-risking" the mortgages before they are purchased by the GSEs, according to the MBA white paper.

"Ultimately, this would put private capital, not taxpayers, in the first-loss position and would allow lenders of all sizes to compete, driving down costs for borrowers," said MBA President and Chief Executive David Stevens.

The deeper credit enhancement would the lower the effective loan-to-value to 50% or 60%. In exchange for this reduction in risk exposure, the government-sponsored enterprises could lower their guarantee fees and loan level price adjustments.

The Federal Housing Finance Agency has directed the GSEs to conduct $30 billion in risk sharing transactions this year where private investors or mortgage insurers take a first-loss position on Fannie and Freddie mortgage-backed securities.

But the MBA wants risk sharing to start at the time of origination — before the loans are sold to Fannie and Freddie.

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