CMLA: Time to reduce the FHFA g-fees, mortgage insurance

Fannie, Freddie fees create an unnecessary cost

The Community Mortgage Lenders of America wants the Federal Housing Finance Agency to lower the costs of mortgages by cutting g-fees.

The trade association says it’s time for FHFA Director Mel Watt to exercise his authority and have Freddie Mac and Fannie Mae lower the guaranty fees and loan level fees they levy.  

This renewed call by the CMLA follows a declaration last week by the Obama administration that it will not allow the GSEs to retain earnings to rebuild their capital base.

Speaking at a Goldman Sachs conference, the U.S. Treasury’s Counselor on Housing Finance Policy Michael Stegman made it clear the Administration is intent on pursuing a long-term reform legislation strategy, the outcome of which is more than uncertain.

Stegman readily acknowledged to his Wall Street audience that both “recapitalization of the GSEs and draws against the existing Treasury backstop due to potential future losses would come at taxpayers’ expense.”

The CMLA believes the administration should embrace a short-term solution to eliminate GSE risk with certainty pending legislative action.

“If the Obama administration is not going to rebuild the GSEs capital, then there is no reason to continue levying excessive GSE fees on financially qualified low, moderate and middle income homebuyers,” says CMLA Chair Paulina McGrath.

McGrath noted that the current high level of guaranty and loan level fees were imposed when the risks to the GSEs, from market conditions and weakening counter party financial strength, were considerably greater than they are today.

“These fees should be reduced in recognition of a change for the better in market conditions. Failure to reduce these fees constitutes an additional and unnecessary cost on homebuyers.”

The GSEs, McGrath says, are “vital to the provision of affordable mortgage credit to American homebuyers. We could support artificially elevated fees if the money were used to rebuild GSE capital levels. However, given Stegman’s declaration and the reduced risks faced by the GSEs, the fees are no more than a tax on American homebuyers or anyone seeking to refinance. The administration should call it what it is.  

“Treasury and the U.S. taxpayers have more than repaid the federal bailout. The GSEs to date have remitted $220 billion and are on track to be the most lucrative of all 2008 Treasury interventions in the financial sector,” she says.

The GSE imposed higher fees to hedge against market risks that have since lessened significantly.

A 25 basis points adverse market fee was imposed when excessive levels of housing inventory and declining values characterized a large number of U.S. markets.

“Fortunately the U.S. housing markets nationwide, as well as regionally, are in much better shape today than in the immediate aftermath of the financial crisis,” McGrath says.

The GSEs imposed additional fees on loans with down payments of less than 20% of the purchase price of the home. This fee was levied when the mortgage insurance industry, which insures most loans purchased or securitized by the GSEs with down payments of less than 20%, was suffering high loss levels and declining capital levels as a result of the financial crisis.  

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