As the Obama administration forges ahead this spring with plans to wind down mortgage giants Fannie Mae and Freddie Mac, community banks and credit unions are bracing for the impact.

The government-sponsored entities are the most active buyers on the secondary market for residential mortgages, where a growing number of small financial institutions sell the home loans they originate. Private investors remain largely inactive in acquiring mortgages, leaving originators to question how the industry will function without government support.

“We’re all preparing to work with whatever private investor structure re-emerges,” said Juli Anne Callis, chief executive of Rockville-based NIH Federal Credit Union, which serves the biomedical industry. “Are those investors starting to percolate up? We’re hearing discussions, but we’re not seeing it yet.”

A year ago, the administration issued a white paper outlining three options for replacing Fannie and Freddie. They include creating a new government agency that would continue to insure mortgages or one that would intervene only during a crisis.

Small financial institutions worried that with Fannie and Freddie out of the picture, a handful of large banks could dominate the secondary market. Those big banks might favor their own mortgage originating divisions and muscle community banks and credit unions out of the market.

“We want some sort of mechanism or entities that would provide equal access to community banks,” said Ann Grochala, vice president of lending and accounting policy at the Independent Community Bankers of America, a trade group. “There’s a variety of possibilities out there . . . but we haven’t seen the solution yet.”

Holding on to their loans

Traditionally, community banks and credit unions kept on their books a majority of the loans they originated. Credit Union National Association, for instance, estimates that its members sold between 25 and 40 percent of their loans before the financial crisis. Those percentages grew as falling interest rates fueled demand for mortgages.

“Credit unions individually are fairly small in this business,” said Bill Hampel, chief economist for the credit union group. “But if there’s no publicly supported vehicle to the secondary markets, each credit union would be so small that they would not get good pricing or access. And that would cost credit union members.”

Hampel said the association is talking with the Treasury Department about the future of McLean-based Freddie Mac and Washington-based Fannie Mae, but he noted that credit unions are working on contingency plans. One solution, he said, could be greater reliance on credit union service organizations. Such entities enable institutions of all asset sizes to make loans by collectively managing the risks.

Grochala said the community bank association is also considering a cooperative structure, modeled after the Federal Home Loan Banks, whereby participating banks would be responsible for capitalizing the entity.

Still, she said, “there must be some sort of continued government ties because that provides the liquidity source you truly need and confidence to the markets,” Grochala said. “There are a variety of ways that could function, whether it be an explicit or implicit fee paid for the guarantee.”

While Cardinal Bank chief executive Bernard Clineburg doesn’t discount the viability of a cooperative model, he stressed there are private investors, such as pension funds, buying mortgages from community banks like his.

Tougher on borrowers

McLean-based Cardinal, he said, holds on to less than 10 percent of the $3 billion to $5 billion in mortgages it originates annually. Clineburg said the bank doesn’t sell directly to Fannie and Freddie but instead moves loans to aggregators that are likely to work with the mortgage giants. Cardinal, he said, should suffer little impact if the agencies are phased out in the next two years. But there would be consequences, especially for consumers.

“When you have private industry purchasing the mortgages, they are going to be tougher on underwriting. And that means larger down payments, higher interest rates to adjust for the risk of no government guarantee,” Clineburg said.

The administration has been taking steps to increase private- sector participation, including scaling back loan limits and raising the guarantee fee, said Frank Donnelly, president of the Mortgage Bankers Association of Metropolitan Washington.

“They’re trying, but they are going to have to make it safer for the investment and more profitable for the private market to come back,” he said.