To counter rising mortgage rates, the National Association of Realtors is urging the Treasury Department to "aggressively" increase its purchase of Fannie Mae and Freddie Mac MBS.

"We believe that more active MBS purchases will reduce spreads and therefore mortgage interest rates and help bring more homebuyers into the market," NAR says in a letter to Treasury secretary Henry Paulson.

Treasury purchased $5.1 billion in agency MBS in September and has pledged to purchase more in an effort to increase market liquidity. Fannie and Freddie also are expected to increase purchases of their MBS. But so far, market watchers say the impact has been minimal.

The trade group says that "investment is flooding away from agency MBS to bank credit products" now that the Federal Deposit Insurance Corp. has guaranteed unsecured bank debt. This "unintended" consequence, NAR says, has pushed mortgage rates up to 6.5%. "For this reason, we urge Treasury and Federal Housing Finance Agency (FHFA) to more aggressively participate in the MBS market by increasing purchases of agency MBS." The FHFA regulates Fannie and Freddie.

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