The Federal Housing Finance Agency is seeking public comment on the best way to set guarantee fees for loans bought by Fannie Mae and Freddie Mac.
The request for input issued Thursday afternoon shies away from any specific recommendations, but instead asks a series of questions about how such fees are set and what their impact has been in the broader market.
The FHFA said it wants to ensure that the government-sponsored enterprises set fees at a level that cover the cost of capital, administrative expenses and expected credit losses – as well as turn a profit.
"It is noteworthy that increases in G-fees on higher-risk loans may result in originators insuring/securitizing some of these loans with Federal Housing Administration/Ginnie Mae rather than one of the enterprises,” the FHFA notice says. “While this substitution would reduce the enterprises’ footprint in the mortgage markets, it would not reduce the federal government’s overall footprint. On the other hand, increases in G-fees for lower-risk loans may make it more profitable for banks or other private market participants to retain these loans rather than selling them to the enterprises.”
Fannie charged a 57.4 basis point guarantee fee on loans it purchased during the first quarter while Freddie charged a 56.2 bp guarantee fee.
The notice poses 12 questions for commenters, including two regarding the private mortgage market, which has barely recovered from the subprime meltdown.
"If the enterprises continue to raise G-fees, will overall loan origination decrease?” the FHFA asks. “That is, will enterprise loans decline without a commensurate increase in private capital?”
FHFA also wants input on "what G-fee level would private-label securities investors find it profitable to enter the market or would depository institutions be willing to use their balance sheets to hold loans?”
The FHFA is requesting comments before Aug. 4.
One area the release does not shed light on is whether the FHFA is prepared to reduce or eliminate the loan level price adjustments Fannie and Freddie currently charge in addition to the G-fee.
FHFA Director Mel Watt directed the agency to suspend a proposed 10-basis point hike in G-fees and an increase in LLPAs soon after taking office in January. Watt is still reviewing the issue.
Industry representatives say FHFA is raising the right questions.
"They are trying to balance access to credit and affordability for consumers with their role as conservators of Fannie and Freddie and put more private capital ahead of taxpayers," said Pete Mills, senior vice president for residential policy at the Mortgage Bankers Association.