Small Lenders Lobby for 'Flat' G-Fee

A legislative proposal that would mandate all lenders pay Fannie Mae and Freddie Mac the same flat guarantee fee is gathering serious traction on Capitol Hill, according to industry officials.

If the idea becomes law it would decimate the pricing advantage mega-lenders like Wells Fargo Home Mortgage, Des Moines, and Countrywide Home Loans, Calabasas, Calif., have over smaller competitors.

It also could bring an end to "strategic alliances" between the nation's large mortgage originators and Fannie and Freddie. (Some firms reportedly pay the GSEs g-fees as low as 10 basis points compared to the industry average of 23 basis points.)

Spearheading the call for a one-price g-fee is former U.S. Sen. William L. Armstrong, who is currently chairman of Cherry Creek Mortgage, Greenwood Village, Colo.

Mortgage lobbyists said Mr. Armstrong, who served in the Senate from 1979 to 1991, recently talked up the flat g-fee proposal with the office of Senate Banking Committee chairman, Richard Shelby, R-Ala., and other legislators.

However, this could not be confirmed as Mortgage Servicing News went to press last week. (Mr. Armstrong could not be reached for comment.) A spokesman for the Senate Banking Committee would only say that the chairman is, at this time, "receptive to all ideas" regarding GSE regulatory reform.

Presumably, language mandating a one-price (or flat g-fee) for all could be attached to a GSE reform bill.

Late last week Rep. Richard Baker, R-La., said he has concerns about small lenders paying high g-fees while big lenders negotiate discounts with Fannie and Freddie. "I am concerned," Rep. Baker said. "Although I will not make that allegation, I am concerned that they are discriminatory in their application."

The chairman of the House Financial Services Subcommittee on Capital Markets, Insurance and GSEs is currently working on a GSE bill to strengthen regulation of Fannie and Freddie.

The idea that all seller/servicers should pay the same g-fee is not new but what's new is the fact the idea is gaining serious attention.

One veteran lobbyist said a flat g-fee "will be part of the hearings" on GSE regulatory reform, but asked, "will it go anywhere?"

He added that Mr. Armstrong has definitely "put the issue on the table."

Another veteran mortgage banker said "the idea will go somewhere. It's gaining traction."

A five-page working paper written by Mr. Armstrong, and obtained by MSN, says Fannie and Freddie "have adopted a negotiating and pricing strategy which favors a handful of very large companies to the disadvantage of literally thousands of small mortgage originators."

In a section of the paper addressing "what could be done," Mr. Armstrong calls for Congress to legislate that Fannie and Freddie offer g-fees "on the same terms to all lenders." It also says the GSEs should exit the MBS "pool guarantee business altogether and the let the private sector fulfill this need."

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