It's almost an article of faith in the mortgage business that Fannie Mae and Freddie Mac have slashed margins for lenders and made home loans cheaper for consumers.

By some estimates, mortgage rates are as much as 0.5% lower than they would be without the securitization efforts of the two government-sponsored mortgage agencies.

But consultant Bert Ely, a frequent critic of banking regulation, says homeowners would cut a better deal if banks and thrifts reasserted their dominance of the mortgage market by holding in portfolio the 30-year, fixed-rate mortgages generally favored by homebuyers. '

Though thrifts and banks are making such loans, they sell virtually all in the secondary market to avoid interest rate risk.

In a letter to the Congressional Budget Office, Mr. Ely has resurrected a proposal that thrifts and banks replace federal deposit insurance with "cross-guarantees" of each participant's deposits and other liabilities.

Rep. Tom Petri, R-Wis., with Mr. Ely's help, drafted a bill two years ago that would have established a cross-guarantee system.

The financial system would be strong with such guarantees than with government guarantees, Mr. Ely argues.

Essentially the plan would provide for self-insurance, with each participant guaranteeing almost all the insolvency risk of the others. Participation would be on a negotiated basis, to ensure that market forces influenced the system.

And here's how, according to Mr. Ely, it could change the mortgage market:

The cross-guarantees would allow all depositories - large and small - to raise long-term debt at the advantageous rates of triple-A borrowers. (Few banks or thrifts now have access to those terms, and the only other long- term financing they can get is from the Federal Home Loan banks.)

Once banks and thrifts got cheap long-term debt to fund their mortgage portfolios, Fannie and Freddie wouldn't have the edge they now do.

Indeed, Mr. Ely says, such an arrangement would be cheaper than securitization, which requires a second round of underwriting and brings "excessive uniformity to the mortgage product," making it harder for people who don't fit the mold to get loans.

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Fannie Mae said its issuance of mortgage-backed securities in June was bolstered by the strong housing market and by banks' selling seasoned loans.

The loans were typically originated six to 12 months earlier, Fannie said.

Jayne Shontell, senior vice president for investor relations, said she thinks the bank sales were made to improve liquidity and perhaps to reduce capital requirements.

Fannie bought some $20 billion of loans for securitization in June, slightly move than its monthly average so far this year.

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