Fannie, Freddie Trade Fire Over Price-Cutting Plans

The race to book more automated loan evaluation business is creating new tensions between Fannie Mae and Freddie Mac, with each claiming to be more committed than the other to reducing costs for lenders.

At the Mortgage Bankers Association's secondary marketing conference last week, Fannie Mae chairman James A. Johnson presented a detailed blueprint, while Freddie Mac chairman Leland C. Brendsel took a broader approach, disclosing few specifics.

Fannie Mae and smaller rival Freddie Mac use the systems to evaluate loans for purchase and resale on the secondary market. Right now, both agencies charge lenders about $100 to run a loan through the system. Lenders are charged less, about $25, if the loan isn't up to standard and not purchased.

Fannie Mae executives said the brevity of Mr. Brendsel's presentation proved that he really didn't have much of a plan. "Leland just placed a couple of sentences into his speech (about a cost-cutting initiative), when we had devoted a hundred people and thousands of hours to planning," one Fannie Mae executive said.

Mr. Brendsel told American Banker later that there was "no truth" to Fannie Mae's implication that Freddie Mac is not serious about cost cutting. "We have been working on revising our pricing policy for more than a year."

Lenders can expect to see pricing cuts in place within 30 to 60 days, he said. The costs could be reduced by 50% in some cases, said Freddie Mac vice president Peter Maselli. He said it was hard to pin down savings because his agency has different service agreements with different lenders.

Fannie Mae, meanwhile, expects to roll out a package of incentives by October, when the MBA holds its annual meeting.

Mr. Johnson said the agency's Best Connections initiative will use a pilot program to choose the best way of cutting costs and also allow lenders to streamline application information.

"We've made it our business to listen to our customers and respond to their technology needs," Mr. Johnson said.

To this end, Fannie Mae will look at ways to prevent lenders from having to pay duplicate underwriting fees-first when evaluating loans and then when submitting them for consideration.

With about 30 lenders, Fannie Mae will test imposing a "nominal" charge to submit the loans for review and a full underwriting fee if it decides to purchase the loans.

The agency is also looking at periodic licensing fees instead of loan- by-loan charges and reducing charges for lenders that keep loans in their portfolios.

Fannie Mae will also reduce to $10 the fee for evaluating loans that it doesn't accept and cut the hourly charge for accessing its processing and information network to $5.95, from $12.

To speed processing times, the agency will let lenders, in many cases, submit summary data instead of comprehensive reports on borrowers.

Fannie Mae will also streamline property evaluation requirements and continue working with the MBA to develop automated underwriting systems that allow "easy access and delivery at a reasonable cost to the lender," Mr. Johnson said.

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