Guarantee fees (G-fees) are likely to
continue the pattern of gradual increases initiated since Freddie Mac and
Fannie Mae were placed in conservatorship.
Edward J. DeMarco, Acting
Director of the Federal Housing Finance Agency told an audience at the American
Mortgage Conference in Raleigh, North Carolina yesterday that the steady
increases, over time, should gradually reduce taxpayers' risk from the
financial support they provide to the two government sponsored enterprises
(GSEs).
Risk, however, is only a part of the
motivation for increasing the cost to lenders and borrowers for the loan
guarantees. DeMarco said that even with
the improvements in the GSEs' pricing of credit risk, these fees remain less than
what one would likely observe in a purely private, competitive market.
He reminded the audience of his remarks
at the same conference one year ago in which he spoke of his preference for a
series of periodic, gradual hikes in the G-fees rather than one or two larger
adjustments. Since then, he said, there
have been two such increases; the first took place in April and was an across
the board 10 basis point increase. The
second, set to begin later this year, is designed to average 10 basis points across
the two companies' books of business with actual increases varying by loan
terms and other factors. "These
increases will move Enterprise pricing closer to what it would be were mortgage
credit risk borne solely by private capital, and it could begin to incentivize
private firms to increase their participation in the mortgage market. We intend to stay on this path with future
increases," he said.
DeMarco also said that his agency will
soon release a paper for public comment outlining a pricing approach that would
address deficiencies in the current system which, while providing uniformity
nationwide, does not take into account the costs associated with varying state
and local policies. The paper will
suggest imposing an upfront fee on newly acquired single-family mortgages
originated in states where the GSEs are likely to incur default-related costs
that are significantly higher than the national average.
Demarco also told the Conference that
FHFA was about to introduce a new set of guidelines for reps and warranties for
all single-family loans acquired by the GSEs after January 1, 2013. MND has covered this new policy, released by
FHFA this morning, in detail here.
FHFA is continuing to reduce the GSEs'
long-term risk exposure through various methods of risk sharing, DeMarco said,
and is considering several alternatives including the expanded use of mortgage
insurance and securities structures. The
agency is also continuing to explore options for disposing of the GSEs' owned
real estate (REO) and, after reviewing thousands of responses to a Request for
Information, is testing a program to allow investors to purchase pools of
Fannie Mae foreclosed properties in hardest hit areas with the requirement they
be kept as rentals for a specified number of years.
Earlier this year FHFA issued a
Strategic Plan for the GSEs which identified three goals for the next phase of
the conservatorships: to build a new infrastructure for the
secondary mortgage market; gradually contract the GSEs' dominant presence in
the marketplace; and maintain foreclosure prevention activities and credit
availability for new and refinanced mortgages.
DeMarco said that analysis is well underway for building a securitization
infrastructure that could "serve as a utility that would outlast Fannie and
Freddie as we know them." FHFA anticipates
releasing a white paper in October on the new infrastructure in order to
initiate public input.
"In our view," DeMarco said, "whatever
the structure of the secondary mortgage market of the future, certain key
functions will need to be performed. And
in many cases, like developing data reporting standards, the standardization of
such functions would provide benefits to the overall market." "While Fannie Mae and Freddie Mac continue
their respective corporate activities while in conservatorship, as Conservator,
FHFA is thinking ahead to a secondary market with multiple firms competing to
bring the capacity of global capital markets to finance individual mortgages
around the country."