The Federal Housing Finance Agency (FHFA) is requesting input on the guarantee fees (g-fees) that housing finance giants Fannie Mae and Freddie Mac charge lenders.
In January, Mel Watt, director of the FHFA, postponed the implementation of g-fee increases that were previously announced in December 2013 by former director Edward DeMarco, pending further review.
‘The implications for mortgage credit availability and how these changes might interact with the new qualified mortgage standards could be significant,’ Watt said at the time. ‘I want to fully understand these implications before deciding whether to move forward with any adjustments to g-fee pricing.’
Watt had said in a statement in late December that he would delay implementation of the new fee structure ‘until such time as I have had the opportunity to evaluate fully the rationale for the plan and the plan's likely impact on the government-sponsored enterprises' risk exposure, the cost and availability of credit, and how the plan would interface with the qualified mortgage standards.’
The proposed g-fee hikes were controversial because some industry experts feared they would sharply increase the upfront fees for borrowers with less-than-perfect credit scores or who cannot make significant down payments.
The Request for Input includes questions related to g-fee policy and implementation. Basically, the goal is provide the optimum level of g-fees required to protect taxpayers, while at the same time maintaining ample mortgage credit availability.
Specifically, the FHFA is soliciting responses to the following questions:
1. Are there factors other than those described in section III – expected losses, unexpected losses, and general and administrative expenses – that FHFA and the enterprises should consider in setting g-fees? What goals should the FHFA further in setting g-fees?
2. Risk to the enterprises increases if the proportion of higher-risk loans increases relative to the proportion of lower-risk loans. This change in mix can occur if lower-risk loans are retained on bank balance sheets instead of being sold to the enterprises, if more higher-risk loans are sold to the enterprises, or if the overall mix of originated loans changes. What alternatives, other than risk-based pricing, should be considered? What are the pros and cons of each alternative?
3. Currently, target return on capital and the amount of capital largely determine required g-fees. What factors should the FHFA and the enterprises consider in setting target return on capital and amount of capital required? How should the enterprises allocate capital across risk buckets?
4. At what g-fee level would private-label securities (PLS) investors find it profitable to enter the market or would depository institutions be willing to use their own balance sheets to hold loans? Are these levels the same? Is it desirable to set g-fees at PLS or depository price levels to shrink the enterprises' footprints, even if this causes g-fees to be set higher than required to compensate taxpayers for bearing mortgage credit risk and results in higher costs to borrowers?
5. If the enterprises continue to raise g-fees, will overall loan originations decrease? That is, will enterprise loans decline without a commensurate increase in private capital?
6. Is it desirable for the enterprises to charge higher g-fees on low credit score/high loan- to-value ratio (LTV) loans if it causes these loans to be insured/securitized through FHA/Ginnie Mae rather than through the enterprises?
7. Is it desirable for the enterprises to (a) charge higher g-fees on high credit score/low LTV loans if it causes these loans to be insured/securitized through PLS or (b) held on depository balance sheets, rather than guaranteed by the enterprises?
8. What approaches or alternatives should the FHFA consider in balancing increased use of risk-based pricing with the HERA mission requirements of (1) liquid national housing markets and (2) acceptability of lower returns on loans made for low- and moderate-income housing?
9. Are the ranges of credit score and LTV cells in the proposed credit score/LTV grids used to set upfront delivery fees and loan level pricing adjustments appropriate? Should any of the ranges be broader or narrower and, if so, why?
10. Should risk-based pricing be uniform across the enterprises, or should each enterprise manage its own pricing?
11. Taking into consideration that the FHFA has previously received input on state-level pricing adjustments, do the g-fee changes proposed in December 2013 have any additional implications that should be considered in deciding whether to price for the length of state foreclosure timelines, unable to market periods or eviction timelines? Are there interactions with other pricing components under consideration that the FHFA should consider in making decisions on the state-level adjustments?
12. Are there interactions with the Consumer Financial Protection Bureau's qualified mortgage definition that the FHFA should consider in determining g-fee changes?
Input must be received no later than Aug. 4 and should be submitted to the Federal Housing Finance Agency, Office of Policy Analysis and Research, 400 7th St., SW, Ninth Floor, Washington, D.C. 20024, or via FHFA.gov.