Mortgage bond investors will be willing to return to non-agency investments once lenders "open up" to more "average borrowers," according to a report from credit ratings agency Standard & Poor's.

"The GSE and FHA loans have made up most of the market for the past few years, but this isn't a long-term solution because of the burden of government support on tax payers," explained credit analyst Sharif Mahdavian. "We believe non-agency activity in the prime market will slowly pick up in the future once investors gain confidence in today's underwriting standards and credit quality."

The Federal Housing Finance Agency, in its five-year strategy, said it is committed to reducing the level of government support in the mortgage market and encourage higher private investment.

Presently, the private market consists of "super prime" loans, which exclude most borrowers, S&P said.

"We think that future securitization can embrace more prime mortgages once investors get more comfortable with today's underwriting standards," the analysis adds.