Senator Questions Guarantee Fee

Senate Banking Committee chairman Richard Shelby, R-Ala., is looking into complaints from small lenders that Fannie Mae and Freddie Mac charge them high loan guarantee fees while offering discounts to large seller/servicers.

At a committee hearing in February, Sen. Shelby said this business practice places small lenders at a disadvantage and could be contributing to greater consolidation in the industry.

"A lot of people are concerned that these business practices may be pushing the mortgage and lending industry toward ever more concentration," the chairman said.

When asked by reporters if he believes g-fees should be the same for all lenders, Sen. Shelby said, "We will probably explore that some more."

Lenders pay g-fees to Fannie and Freddie to securitize loans. The cost is passed on to borrowers. The average g-fee is in the range of 20 to 23 basis points, but some large seller/servicers that deliver volume are paying as little as 14 basis points, sources have told this newspaper.

As previously reported, the Office of Federal Housing Enterprise Oversight is investigating the GSEs' g-fee practices.

Meanwhile, at the same hearing last week, the Department of Housing and Urban Development - which has program approval authority over Fannie and Freddie - said it has rarely denied the two any new activities.

Assistant Housing secretary John Weicher told the committee that the last time HUD turned down an application for a new GSE activity was in the early 1990s when Fannie Mae tried to launch a product "that seemed to go into the business of making advances" to seller/servicers.

The granting of advances is a bread-and-butter activity of the Federal Home Loan Bank System.

Mr. Weicher told policymakers that he usually hears word about a new GSE product "when I read about it in a press release."

New program approval was an important issue in last year's debate over a GSE bill.

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