As the smaller GSE, Freddie Mac has traditionally been friendlier toward small seller/servicers than its larger competitor Fannie Mae.
So it was a surprise to many when Freddie revealed its plans to impose a new $7,500 administrative fee on its smallest customers starting in 2014.
The fee is designed to cover the administrative and due diligence costs of maintaining business relationships with entities that sell few loans during the calendar year.
To avoid this $7,500 fee, a firm must sell at least $5 million in loans to Freddie per year or service at least $25 million in loans.
Most mortgage bankers will not be affected by this low-activity fee. They generally originate and sell more than 30 loans a year, according to the Mortgage Bankers Association.
“We are concerned about it from the community bank standpoint,” said MBA senior vice president Pete Mills. A small bank will generally portfolio a portion of its originations instead of selling all their production to Freddie or other investors.
“The thresholds are probably a little high for community banks,” Mills said. “We are hopeful they will take a second look.”
The American Bankers Association and Independent Community Bankers of America are also urging Freddie to reconsider the new fee.
“This fee will place an unfair burden on community banks—forcing many of them to sell their servicing portfolios and terminate their relationship with Freddie Mac” according to ICBA senior vice president Ron Haynie.
He noted that most of Freddie’s losses during the financial crisis were the result of the lending practices of its largest customers. Now that Freddie is reporting record profits, it is proposing to penalize small banks that caused few losses for the secondary market agency.
“These thresholds are sending a message to the mortgage industry that Freddie Mac only wants to do business with the largest lenders,” the ICBA says in a letter to Freddie Mac and the GSE regulator—the Federal Housing Finance Agency.
Freddie purchased $135.6 billion in single-family loans from lenders during the first quarter. Wells Fargo Bank, JPMorgan Bank and U.S. Bank accounted for 44% of those loans.
“Our top 10 single-family seller/servicers provided approximately 68% of our single-family purchase volume during the first quarter of 2013,” Freddie said in its first quarter securities filing.
In a separate letter, ABA warns that the new fee will have a “devastating impact on many community banks’ ability to remain Freddie Mac seller/servicers.”
In addition, the new fee runs counter to FHFA’s policies, which requires Fannie Mae and Freddie to “avoid any unwarranted policies or practices that favor large institutions to the disadvantage of smaller institutions,” the ABA letter says.
“Given the important role played by the Enterprises in providing the bulk of secondary market access for lenders of all sizes during this nascent housing recovery, it is imperative that this fee be reconsidered before its harmful effects can diminish the presence of community banks in the mortgage market,” said ABA senior vice president Bob Davis.
Industry sources indicate that Freddie is reconsidering the thresholds. But a GSE spokesman was not that specific.
“We are always examining our policies in light of market changes and customer feedback,” Freddie spokesman Brad German said.
There are community banks that haven’t sold a loan to Freddie in several years. However, a small bank that regularly sells to Fannie and Freddie could be hurt by the low-activity fee.
Fannie charges a $1,000 “inactivity fee” for lenders that deliver less than $2 million in loans during the calendar year or service less than $25 million in loans. The ABA wants FHFA to review the Fannie fee, along with the new Freddie fee.
