CHICAGO — Lenders hoping to hear some good news here last week at the Mortgage Bankers Association's annual secondary market conference went away disappointed.
First, Freddie Mac and Fannie Mae told the meeting there would be no retreat from what lenders consider excessive guarantee fees. Then former Federal Reserve Board governor Randall Kroszner said the Fed has no particular strategy in mind for its exit from the mortgage-backed securities market.
As if to punctuate the somber gathering, the MBA's chief economist said seven of every 10 mortgages originated this year will replace loans already on the books. If this forecast proves accurate, servicing runoff will accelerate dramatically in coming months.
The MBA said more than 700 people registered for the conference. But the exhibition hall was largely empty, save for lunchtime when a free buffet was served. And plenty of seats were available at the sessions.
During the conference's opening session, the MBA's chairman-elect, Rob Story, asked Fannie and Freddie executives whether they are considering reducing the fees they charge lenders for insuring payments on the securities they issue. Donald Bisenius, Freddie's senior vice president of single-family credit guarantee business, responded bluntly.
"No, we're not going to lower our fees," he said. Fees must remain at their current levels because "the housing market is very, very fragile. Prices at best are flat and still falling in many places. We need to balance against that risk."
Thomas Lund, Fannie's executive vice president of single-family mortgage business, said the current charges strike a fair balance between providing liquidity to the mortgage market and protecting taxpayers against footing the bill for loans that go sour.
Kroszner, who returned to the University of Chicago in January after a three-year stint at the Fed, was asked by Jay Brinkmann, the MBA's chief economist, what plans the Fed has to extricate itself from the MBS market when it reaches the $1.25 trillion of net purchases it has targeted for 2009.
The association is concerned that, when the Fed leaves the market, mortgage rates will shoot upward.
Kroszner said the central bank will "do whatever it takes" to keep mortgage rates in check until the MBS market returns to some approximation of normality. "Whether the Fed will purchase more or less will depend on the facts and circumstances at the time," he said. If the central bank is satisfied by 2010 that the market is coming back, it will reduce its purchases and "mortgage rates should rise at a normal pace," he said.
Brinkmann forecast that refinancings would account for 70% of all loans originated this year. Refi volume will almost triple from what it was in 2008, he said, to $1.925 trillion this year.
The MBA economist said about $1.5 trillion worth of loans would be the result of "plain old, rate-term refis" and the remainder would be mortgages refinanced under the government-sponsored enterprises' program for borrowers who are current but owe more than their homes are worth.
The number of purchase loans will fall only 1%, Brinkmann said. But because of shrinking loan sizes, the dollar volume will diminish by 5.7%, to $806 billion this year.