The Mortgage Bankers Association, long dovish when it comes to Fannie Mae and Freddie Mac, may soon take a hard line against turf expansion by the two secondary-market giants.
The MBA has drafted a policy statement that is surprisingly critical of the companies, advocating curtailment of their activities outside of buying home loans.
The draft has been approved by the group's board of governors for residential lending and would become official policy if endorsed by its board of directors. A copy of the draft was obtained by American Banker.
Paul Reid, executive vice president of the MBA, said the draft is "a work in progress" and subject to amendment. Directors are to consider the statement in August.
Fannie and Freddie have riled many in the industry with their recent technology and mortgage insurance initiatives, but have not previously been directly opposed by the association. The trade group is moving toward a hawkish stance at a time when the two are under fire from others in the financial services industry. Last week FM Watch, a coalition of trade groups formed to contain Fannie and Freddie, held its debut press conference.
Fannie and Freddie have painted the coalition as simply a lobby for the mortgage insurance industry, out to protect insurers' profits at consumers' expense. Fannie ran an ad in Tuesday's Washington Post warning against the "Coalition for Higher Mortgage Costs."
Although the MBA has not joined FM Watch, the forthcoming policy statement could undermine the claim of the government-sponsored enterprises, or GSEs, that only a handful of mortgage insurers oppose their expansion.
Fannie's and Freddie's promotion of their automated underwriting systems as tools for lenders to review loan applications has irked large lenders who have invested millions in their own automated underwriting software.
The MBA's draft says these systems were "developed in a subsidized environment, yet have served to discourage development of competing systems from the private sector, thereby limiting competition and innovation."
"The GSEs should refrain from further development or sale of technology other than technology focused on their internal risk management and not for outside users," the draft says.
The statement adds that the GSEs "should be encouraged to approve automated underwriting systems developed by the private sector." Fannie and Freddie should publicly release data they collect on loans "to enable primary market participants to improve the efficiency of the mortgage markets," it says.
Noting that such fees are passed on to borrowers, it says: "Guarantee fees and other charges should be set at levels appropriate to protect the GSEs against the risks posed by the types of mortgages purchased, as well as guarantees and services provided, and to provide reasonable but not excessive returns to shareholders."
One mortgage executive active with the MBA said that statement implies opposition to the reduction of guarantee fees in exchange for promised chunks of lenders' business.
Earlier this year, both Fannie and Freddie struck deals in which major lenders agreed to sell all or most of their production to one of the GSEs in return for freedom to use their own underwriting systems.
No one involved in these pacts would say whether they included lower guarantee fees for the lenders, but the perception that Fannie and Freddie are making price concessions in these alliances has hurt the GSEs' stocks lately.
A Freddie Mac spokeswoman said volume was always an issue in setting guarantee fees. "It would be naive to assume that a big lender doesn't have some negotiating power," she said.
Despite the GSEs' assurances to the contrary, many mortgage lenders fear that Fannie and Freddie will one day lend directly to consumers, or fund loans through brokers, cutting the lenders out. The letter advocates "prohibition against participation by the GSEs in any primary mortgage market activities."
Fannie and Freddie are private corporations chartered by the federal government whose stocks are traded on the New York Stock Exchange. They enjoy certain advantages of government sponsorship, including an implied guarantee of their debt.
"This structure," the MBA's draft says, "creates an inherent conflict between the public purpose goals of the GSEs and their private sector goals of maximizing return to their shareholders."
Fannie Mae and Freddie Mac have seen the draft, officials confirmed. A Fannie spokesman said the document "seems to be out of step with what our lender customers are telling us."
"Every day we're in business deals with thousands of mortgage bankers who tell us that our technology gives them what they need to offer consumers faster, easier access to flexible and affordable home financing."
A Freddie Mac spokeswoman echoed these remarks. "The technology we've developed has benefited our customers and has helped our lenders make the process simpler and fairer. We see that as part of our mission."
