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The hot-button topic of what Fannie Mae and Freddie Mac should charge for loan guarantees is emerging as a key issue in reviving a private-label securitization market.
August 19 -
Fannie Mae and Freddie Mac are relying more and more on their income from loan guarantee fees just at a time when their regulator is considering a proposal to reduce those fees.
August 8
The Federal Housing Finance Agency is expected to announce as soon as Friday a modest reduction in certain fees that Fannie Mae and Freddie Mac charge on single-family loans.
The reduction appears likely to involve loan-level price adjustments that the two government-sponsored enterprises charge borrowers and adverse market fees charged on every loan, but not a guarantee fee reduction that the industry has sought.
"Everything I have heard indicates the FHFA is going to adjust the loan level fees and probably leave the guarantee fee alone," said Glen Corso, the executive director of the Community Mortgage Lenders of America.
The FHFA solicited public comment in June on resetting guarantee fees, but shied away from making any recommendations.
FHFA Director Mel Watt's first official action when he took office last year was to suspend a 10-basis-point increase in the G-fee planned by his predecessor Edward DeMarco. Some in the industry had hoped Watt would then move quickly to reduce the fees instead.
But Watt is likely to announce Friday that the agency will eliminate a 25-basis-point adverse market fee the GSEs charge on every loan. Fannie and Freddie implemented the fee when home prices were falling nationwide. But home prices are due to rise 6% in 2015 and 5% in 2016, according to CoreLogic.
Reducing the adverse market fee is "low-hanging fruit if they want to open up credit availability," said Joe Ventrone, vice president of regulatory and industry relations at the National Association of Realtors.
"The real estate market is not adverse anymore. They are currently overpricing the product," he added.
The FHFA is also expected to reduce the loan level price adjustments or LLPAs, which is a fee that homebuyers pay at closing. An LLPA can cost $3,250 on a $100,000 loan for a borrower with a low credit score and little equity.
Riskier borrowers with 640-659 FICO credit scores can pay three times the LLPAs than borrowers with 700-719 FICO scores. The FHFA is expected to reduce that differential now that the housing market is healing with fewer delinquencies and lower loan losses.
"The magnitude of the targeted LLPA reductions appears to be modest. We believe this could translate to 25bp-50bp in LLPA cuts," according to an April 16 report by Credit Suisse analysts.
News of the FHFA's move was first revealed by the
The FHFA is also expected to release new capital requirements for private mortgage insurers soon. The mortgage insurers have had to recapitalize over the past few years. Now regulators and lenders can rely on the MIs to pay their claims when borrowers default, which gives FHFA more comfort in reducing loan fees.
While industry officials are likely to be disappointed with the FHFA's first move, some expect the agency to will take additional steps over time to reduce GSE loan fees.
