It appears the great debate over altering the minimum servicing fee paid by Fannie Mae and Freddie Mac is coming to a close with many mortgage professionals hoping that in the end no change whatsoever will be made.
Moreover, advisors, trade group officials and mortgage bankers who have been a party to several forums on the issue say Fannie officials, at this point, are the only ones still pushing the issue.
Currently, the “change the fee” scorecard reads likes this: Fannie strongly in favor, Freddie Mac strongly against and the Government National Mortgage Association leaning toward being a neutral party, but definitely in no rush to upset the apple cart.
Officials at all three agencies aren’t talking openly about where they stand on reducing the 25 basis point minimum paid to servicers and it’s still anticipated that some type of proposal, or at least a “talking points” draft, will be issued by July 4. (The GNMA minimum is 44 basis points.)
“This has been a hot point of discussion for several months,” said Tom Piercy, managing member of Interactive Mortgage Advisors, Denver, “but it feels like there is no longer a significant amount of pressure anymore to do anything.”
Of course, that’s exactly what advisory firms the likes of IMA and United Capital Markets—both Denver based—are hoping for.
In a recent note to their clients, UCM senior executives Austin Tilghman and David C. Stephens noted, “The good news is that the discussion seems to have taken an introspective turn with more participants on both sides of the issue, from GSEs to mortgage servicers, now saying that we need to have a more thoughtful debate, including leaving the minimum servicing fee where it is.”
IMA, UCM and other advisory firms make an active market in MSRs and provide seller/servicers with hedging advice, a business that potentially would be hammered if the current fee structure—which allows for this asset to be capitalized—is altered significantly.
Up until two weeks ago Fannie Mae was still holding webinars on the topic and providing support materials for its position of change.
The webinars were not open to members of the press, but Fannie documents provided to National Mortgage News suggest that the GSE is pushing to cut the fee down to as low as 5 basis points, believing that allowing MSRs to be capitalized has contributed to mortgage industry consolidation—in particular the nation’s megabanks controlling 60% of the servicing market.
“The servicing industry has become increasingly consolidated, which leads to problems from the guarantors’ perspective in terms of managing servicer performance and counterparty risk,” Fannie says in a webinar paper entitled “Servicing Compensation Initiative.”
The guarantor that Fannie mentions is Fannie itself.
Industry consolidation has been a double-edged sword for both GSEs. Until the mid-1990s, Fannie (and Freddie) could dictate lending and secondary market standards—and buyback rights—to their seller/servicers without impunity. But as the “megalenders” and megabanks, the likes of Countrywide Financial and Wells Fargo, gained so much market share, these seller/servicers could ask for (and receive) price breaks in the form of lower guarantee fees.
Lower guarantee fees reduced the earnings power of Fannie and Freddie.
Then again, Fannie continues to bleed red ink (as opposed to Freddie, which is now profitable) and reducing the g-fee isn’t likely to change that any time soon, which leads many in the industry to ask: Where’s Fannie really coming from on this issue?
