GSE Takeover Raises Many Questions

The government takeover of Fannie Mae and Freddie Mac has raised as many questions as it has answered in lenders' minds about what it will be like to do business with the government-sponsored enterprises in the months ahead. A stated goal of placing Fannie and Freddie into conservatorship (an action that has made "GSE" something of a misnomer) is to ensure that money keeps flowing into the mortgage market. But the Treasury Department's plan also envisions whittling away their portfolios after a brief period of expansion. Meantime, the Federal Housing Finance Agency said it plans to tighten regulation of the companies as mandated by the law that created it. Many market observers and lenders predicted Monday that the regulators' near-term actions would reduce mortgage rates, sparking a wave of refinancings, which would benefit lenders. Further, some said, the takeover could lead to a reduction of the guarantee fees that Fannie and Freddie charge. These sources pointed to Treasury Secretary Henry Paulson's remark Sunday that the GSEs should examine the structure of such fees "with an eye toward mortgage affordability." But other observers said having the government running Fannie and Freddie could make guarantee pricing less favorable for bigger lenders. No longer concerned about volume or market share, this line of thinking goes, Fannie and Freddie will be less inclined to give breaks on guarantee fees to their bigger suppliers. David Zugheri, the president of First Houston Mortgage Ltd., a retail lender that specializes in prime conforming loans, said he expects a change from the times during which the GSEs "paid up for volume." "What they should do is look at everyone's book of business and lower the g-fees for those lenders that have less risk, not volume," he said. "They should be paying more for quality" by reducing the guarantee fees for less risky loans, he said. In an e-mail to clients on Sunday, Joe Garrett of the consulting firm Garrett, Watts & Co., wrote that Fannie and Freddie might "cut way back on offering lower guarantee fees in return for promised volume. If this were to occur, it will suddenly be much more attractive to sell directly to them, as opposed to selling to the big aggregators who get lower ... fees." Joseph P. Bowen, the chief operating officer and head of secondary marketing at Franklin American Mortgage Co., a privately held lender in Franklin, Tenn., said he expects the fees to drop. "With the federal government intervening and providing that backstop, you would anticipate that credit costs would go down and the fees would go down," he said. During the past nine months, Fannie and Freddie have imposed several loan-fee increases to reflect higher market risk and to bolster their profits. Industry trade groups complained that the increases were making mortgage credit too expensive for consumers, but GSE executives insisted the increases were needed. "Rates were artificially high because Fannie and Freddie were paying for the sins of the past with the g-fees of the future," Mike Drury, an executive vice president at the M&T Bank unit of $65 billion-asset M&T Bank Corp. in Buffalo, said Monday.By Kate Berry and Paul Muolo. Brian Collins, Harry Terris, and Steven Sloan contributed to this article.