Fannie Mae and Freddie Mac will hike their guaranty fees some time next year to better reflect “that which would be anticipated in a private competitive market,” Federal Housing Finance Agency (FHFA) acting director Ed DeMarco said Monday morning.
He also hinted that Fannie Mae and Freddie Mac may soon stop providing volume discounts to their largest seller/servicers.
Speaking at a mortgage conference in North Carolina, DeMarco noted that the GSEs have steadily hiked their 'g-fees' since being taken over by the government in early September 2008. He said the hikes have “lessened the degree of cross subsidization in credit pricing.”
An exact date for the g-fee increase was not provided, but any change would be gradual, he said.
In a CNBC interview after his speech DeMarco dismissed the idea that g-fee hikes will dampen the demand for housing, saying “fees alone are not a barrier” to home ownership.
He also defended himself against recent criticism that FHFA was standing in the way of a massive government refinancing program (see except below), noting that his job is to follow the law and protect taxpayers from future losses.
Govt. Refi Plan Held Back
The White House plan to refinance upwards of $2 trillion of problematic GSE loans is running into a roadblock: MBS investors, in particular foreign buyers that are allies of the U.S.
According to interviews with advisors, lobbyists, and trade group officials who claim to have knowledge of the effort, the Obama administration is temporarily gridlocked because of investor concerns.
One advisor, requesting his name not be published because of the sensitivity of the matter, said “nothing is moving right now.” He blames investors.
In particular, some investors are worried that 6% MBS they are presently holding could be refinanced at 4%, resulting in a 200 basis point loss in yield – which would be no small matter when you consider that these are multi-million bonds.
Some estimates range as high as $24 billion on annual yield payments that might be lost – but that money would result in cost savings, and an economic stimulus of sorts for consumers.
This advisor added that banking regulators and some of the nation's largest banks also are concerned about what effect a massive refi program will have on their servicing portfolios. One source said that, “At some point you have to consider the greater good. No one ever assured investors that their mortgages wouldn't prepay.”
Mortgage insurers potentially could be losers under an Obama refinancing plan – but only if MI coverage is not required. An MI lobbyist said that as far as he knew, waiving coverage is not part of the Obama blueprint at this time, but admitted that the White House plan might change.
Bondholders have been raising objections to the refinancing initiative because they stand to lose $13 billion to $15 billion (fair market value) according to Congressional Budget Office estimates. (The CBO estimate is based on changes to the Home Affordable Refinancing Program where massive refinancings of high coupon MBS might occur.)
"Investors know mortgages are subject to refinancing if rates fall below a certain level," Federal Reserve Governor Elizabeth Duke said. (Mortgage rates are now at historic lows.)
However, she noted that MBS investors have been willing to pay up for higher coupons because of the barriers or "frictions" to refinancing. And they have been pricing those frictions into MBS market. "I don't view changing that dynamic as being harmful to the market," Duke said.