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WSJ: Federal Backing of Mortgages Could Be Paid by Industry Fees

The Wall Street Journal is reporting the Obama administration may propose that any federal backing of mortgages be paid for through fees on the lending industry, according to people familiar with the internal discussions.

While the administration hasn’t settled on a plan to revamp failed mortgage giants Fannie Mae and Freddie Mac, a consensus appears to be emerging that some type of government guarantee will be needed to keep the ailing mortgage market functioning.

Some conservatives don’t believe the government should offer any type of guarantee, while others advocate limited, but explicit, backing. About nine in 10 new loans are currently backed by Fannie, Freddie or government agencies.

Policy makers face challenges determining what types of loans or mortgage-backed securities should be guaranteed and how the industry should be charged for government backing. Government officials want the cost of any explicit guarantee fully offset by the mortgage industry to avoid adding to the federal budget deficit.

But Washington must walk a fine line between pricing a guarantee high enough so it accurately reflects risk, while not charging so much that borrowing costs soar.

Read more at the WSJ here.

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