Fannie, Freddie CEOs to Lenders: We Have No Designs on Your Turf

The chief executive officers of Fannie Mae and Freddie Mac used the annual Mortgage Bankers Association conference this week to try to allay concerns that the two government-sponsored enterprises pose a competitive threat to lenders.

Franklin D. Raines, chairman of Fannie Mae, and his Freddie Mac counterpart, Leland C. Brendsel, stressed that they have no desire to make loans.

At the same time, the two companies moved privately to placate smaller lenders who are afraid they are at a disadvantage in getting good prices from Fannie and Freddie as a result of recent alliances some big lenders have formed with the giant mortgage agencies.

"You originate the mortgages, we buy them," Mr. Raines said. He said Fannie, the biggest buyer of loans on the secondary market, would not originate mortgages even if its charter permitted it.

Mr. Brendsel, at the joint appearance Tuesday, said his company is committed to "ensuring that small and medium-sized lenders can compete on a level playing field" with larger institutions.

"We are your link, particularly for small and medium-sized mortgage bankers, to the capital markets," the Freddie Mac CEO said. "It is essential that we be in the vanguard of innovation and change along with you."

The conciliatory remarks came in response to speculation that Fannie and Freddie are angling to expand beyond their role of providing liquidity for home lending.

Mr. Brendsel and Mr. Raines "were quite on point that their role is in the secondary market and ours is in the primary," said Saiyid T. Naqvi, president and chief executive officer of PNC Mortgage Corp. in Vernon Hills, Ill.

Thomas Jacob, chairman and chief executive officer of Chase Manhattan Mortgage Corp. in Edison, N.J., added that there is a need for a "bright line between the secondary market and the primary market" to provide a comfort level for lenders.

Mr. Brendsel and Mr. Raines also touted their respective automated underwriting systems, now available on the Internet, as pathways to the secondary market for large and small lenders alike.

The two loan agencies have entered into a series of agreements in which large lenders sell most of their loans to Fannie or Freddie in exchange for favorable loan-guarantee fees and for the ability to use their own technology to underwrite loans. The deals are worrisome to smaller lenders, who complain that they may be unable to negotiate the same low loan-guarantee fees.

"We don't show up on anybody's radar screen," said Thomas D. Klein, president of Klein Group, a small mortgage banker in Edwards, Colo. "There is a tremendous disparity in pricing. We're in a business of economies of scale, so it is very difficult for me to compete against a Norwest retail or a Chase retail that are both in my market."

Fannie and Freddie spoke to this concern outside the spotlight at the convention, according to one person familiar with the situation. He said that during a meeting with the MBA, Fannie and Freddie expressed a willingness to negotiate fees with smaller lenders as a group, which would be represented by the trade association. By teaming up, the source said, smaller lenders would be in a better position to get favorable fees.

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