What do you get when you gather executives from the mortgage industry and Wall Street to consider a new type of security? News that a new product will be out in July and, apparently, the release of some long-simmering tensions.

That's the report from participants in a five-hour meeting that Freddie Mac hosted last week at its McLean, Va., headquarters. Freddie held the session for about 30 industry representatives to show how mortgage servicing rights can be securitized.

The housing agency and its rival, Fannie Mae, disclosed they would begin offering servicing-included securities in July. But, they said, the new offerings will trade separately from mainstream mortgage backed-securities.

Joe Suder, senior vice president at PHH Mortgage Corp., Mount Laurel, N.J., welcomed the new products, saying they would allow mortgage banks to shed volatile servicing exposure. But Mr. Suder also has reservations. He is among the mortgage bankers who fear the products will trade at a discount to other mortgage securities and be tough to sell to investors.

Both Fannie Mae and Freddie Mac said they had a number of mortgage lenders interested in the securities. And, to create a market for the new products, Fannie Mae plans to purchase them for its portfolio, said Adolfo Marzol, senior vice president. A spokesman for Freddie Mac said the agency will bid on the products, but that does not guarantee they will be bought.

The agencies had little choice in structuring their new products to remain apart from other mortgage securities. Last month the Public Securities Association - the standard-setting body for the bond market - said the new securities would not meet industry criteria.

Separate marketing is intended to keep the new products, which do not have a track record, from affecting the $1.4 trillion market for mortgage- backed products that do not carry servicing.

Prospective buyers and traders wanted the separation because of concerns about volatility. They reason that mortgage bankers, now that they can securitize both the loan and its servicing revenue, may begin aggressively encouraging prepayments through refinancings.

Freddie and Fannie hope the securities will prove their mettle and soon become part of the more liquid, mainstream market.

Prepayments were a hot issue at the meeting, with discussion quickly progressing beyond concerns about the new servicing securities. From comments by buyers and traders, it became clear "the investment community has long-running resentments" toward Fannie Mae and Freddie Mac for devising programs that encourage the early payment of mortgages, said one mortgage banker who declined to be identified.

Bob Ryan, vice president for mortgage-backed securities marketing at Freddie Mac, acknowledged Wall Street's reservations. But, he said, "It's a bit naive to suggest it's just the agencies." Brokers who get paid according to the volume they generate are very much a cause of the acceleration in prepayments, Mr. Ryan said.

Despite the measure of tension, most executives said they found the meeting useful. "It was excellent from a standpoint that you had various representatives discussing a topic important to all," said Greg Quick, senior vice president at Comerica Mortgage Corp., Auburn Hills, Mich.

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