The Federal Housing Finance Agency has already increased guarantee fees on GSEs loans by 10 basis points this year—as required by Congress—but a new round of g-fee hikes is in the works.
“FHFA will be announcing by the end of August another set of gradual adjustments in guarantee fee pricing that will take effect later this year,” acting director Edward DeMarco says in a recent letter to Congress.
In December, Congress passed a payroll tax extension bill that mandated a 10-bp hike in the g-fee. Lawmakers relied on this 10-year increase in Fannie Mae/Freddie Mac g-fees to cover costs of legislation that extended a payroll tax reduction along with unemployment benefits for two months.
The tax bill also directed FHFA to adjust g-fees so all lenders pay the same amount. Thanks to “strategic alliance” deals between the GSEs and certain seller/servicers, large firms might pay lower g-fees than smaller ones.
The December legislation gives FHFA two years to implement a uniform fee structure.
On a separate track, FHFA has directed Fannie and Freddie to develop alternative MBS structures where private investors bear “some or all of the credit risk.” This is part of a plan (well known in secondary market circles) that DeMarco unveiled in February.
The agency’s goal is to find a way to transfer default and loss risk to the private sector. The agency has offered pay incentives for GSE executives if they initiate risk sharing transactions by the end of September.
Deutsche Bank managing director Steven Abrahams said Fannie and Freddie will visit Wall Street this fall or winter with transactions to test what investors would charge to guarantee or re-insure a pool of loans.
“Once they do that, you will see the price that investors are willing to pay to bear that credit risk,” he said. (The cost will be passed on via guarantee fees.) “In all likelihood, those guarantee fees will be substantially higher than the fee that Fannie Mae and Freddie Mac charge today,” Abrahams said.
