Daily Briefing Weekend Edition

Lenders See G-Fee Cut

By Paul Muolo and Brian Collins

If there was any "silver lining" in the federal takeover of Fannie Mae and Freddie Mac last week, it was the strong possibility that guarantee and delivery fees charged to seller/servicers soon may be reduced.

If, and when, the reductions occur, one central question facing the nation is this: Will the cost savings that lenders experience be passed on to the consumer? (Politicians certainly expect it.)

When Treasury Secretary Henry Paulson announced the government's seizure of the GSEs on Sept. 7, he said the government would look to examine the guarantee fee "structure with an eye toward mortgage affordability."

The new GSE regulator, the Federal Housing Finance Agency, also intends to establish rules for setting guarantee fees but has yet to provide any details.

Meanwhile, the Mortgage Bankers Association is hoping to open up a dialogue with the FHFA on reducing guarantee and delivery fees charged to Fannie Mae and Freddie Mac seller/servicers.

New MBA chief John Courson said, "We'll encourage the new conservatorship management to take a fresh set of eyes" to both types of fees, especially those charged on high loan-to-value ratio mortgages.

Jerry Howard, chief executive of the National Association of Home Builders, said if the fees are reduced it "will help further stem this decline in house values and spur consumer demand. It is the exact right thing to do."

According to company figures, the average g-fee on a newly delivered Fannie Mae loan was 27.8 basis points in the second quarter. The charge on Freddie loans was much lower, 22 basis points, which indicates that the company was having a harder time passing on costs to its lending customers.

MBA says the two also had been tacking on delivery fees in the range of 25 to 50 basis points. One executive, requesting his name not be used, said some delivery fees were as high as 100 basis points. (Prior to the mortgage crisis, g-fees ranged from 10 to 25 basis points, depending on the contractual relationship between the seller/servicer and the GSE.)

The largest seller of residential loans to Fannie Mae is the former Countrywide Home Loans franchise, which is now owned by Bank of America. In 2006 - the last year government figures were available - Countrywide sold $126.5 billion in mortgages to Fannie Mae, outstripping the second largest seller to that GSE, CitiMortgage, which sold $41.7 billion.

For years, Countrywide has been, by far, Fannie's largest seller/servicer, prompting some industry executives to joke that it was actually a "subsidiary" of the GSE.

The largest seller of loans to Freddie Mac traditionally has been Wells Fargo Home Mortgage. Two different divisions at Wells sold $83.7 billion of loans to Freddie in 2006.

Last week, Wells and BoA officials were not commenting on the g-fee issue or anything else related to the federal takeover of Fannie and Freddie.

But both Wells and Countrywide - as well as many other institutions - had "strategic alliance" agreements with Fannie or Freddie, whereby they received discounts on their guarantee fees for selling most of their conventional production to them.

The takeover of the GSEs by Treasury assures that Bank of America, Citigroup, Wells and other lenders will have an outlet for their loans in the secondary market.

Over the past nine months, Fannie and Freddie have implemented several loan fee increases as price adjustments for market risk and to increase their profits. Lender and industry trade groups complained the increases were making mortgage credit too expensive to consumers, but GSE officials insisted the increases were necessary.

When it comes to residential loan purchases from front-line originators, Fannie and Freddie are considered the only game in town.

The GSEs had a combined loan purchase market share of 65.21% in the first half, buying $687 billion in mortgages from their seller/servicers, according to figures compiled by National Mortgage News.

For all of 2007, the two GSEs had a purchase market share of 49.96%. The market share figure is calculated by taking all their mortgage loan purchases and dividing it by total residential originations in the industry.