The proposal is likely one of a few to be presented by the Obama administration as it floats its ideas on how to fix the mortgage finance system, whose failure played a key role in the financial crisis.
The basic, 30-year fixed-rate mortgage, which has hovered at record lows below 5 percent in recent months, could rise as much as 2 percentage points if the U.S.-funded backing of Fannie Mae and Freddie Mac were cut, Swaminathan said.
"It's a very low probability that this is what the government recommends, but if you go down that path it could be very negative for housing," he said.
The average 30-year fixed mortgage was at 5.13 percent last week, according to the Mortgage Bankers Association. In 2002, rates were at 7 percent.
According to sources familiar with President Barack Obama's housing proposals -- to be released on Friday -- they include three options for long-term changes, and some near-term steps to reduce the reach of Fannie Mae and Freddie Mac .
One option would leave the Federal Housing Administration as the sole mechanism for government-backed mortgages, which account for 88 percent of all home loan originations.
The FHA insures loans, which are packaged into Ginnie Mae mortgage bonds for sale to investors. Fannie Mae and Freddie Mac purchase loans from lenders and pool them into their own brands of mortgage-backed securities.
Another course would be to set up a system that would allow the government to backstop some mortgages but only in crises. A third would create an insurance system that would provide "catastrophic coverage" for mortgage bond investors
It also floats the idea of an insurance fund for mortgage bonds that is similar to the Federal Deposit Insurance Corp, sources familiar with the plan told Reuters on Thursday.
Source: reuters.com
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