Next year lenders will be paying more if they want government-controlled Fannie Mae or Freddie Mac to guarantee their mortgages. The fee hikes are designed to “ready the market for private-sector reinforcements and wean the nation’s housing sector off of low-cost government support,” says FHFA acting director Edward DeMarco[1]. DeMarco believes that “a series of periodic, gradual price increases makes more sense than one or two larger price adjustments” and hopes that this will ultimately end federal conservatorship of the GSEs. He also added that the GSE model is “broken beyond repair” and described the conservatorship as nothing more than a “time out” while policymakers devise a new system for housing finance.
Although many analysts have argued that these guarantee fees “stand in the way for a consumer” as HUD director Shaun Donovan puts it, DeMarco has emphasized repeatedly that “fees, and certainly [not] fees alone” do not stand in the way of consumer financing or refinancing[2]. Many housing advocates had hoped that lower GSE fees would be part of the Home Affordable Refinance Program (HARP) reform promised in the president’s jobs speech earlier this month. DeMarco has also gone on record stating that he believed “more progress would have been made by now” on GSE reform. President Obama has also suggested raising GSE guarantee fees in his “Plan for Economic Growth and Deficit Reduction” which he sent to Congress on Monday.
Do you think that the GSEs are being phased out, and is this a good thing? Or do you think that the entire process is stalled?
Thank you for reading the Bryan Ellis Real Estate Letter!
Your comments and questions are welcomed below.
[1] http://www.dsnews.com/articles/fhfa-chief-sounds-private-sector-mantra-with-plans-to-raise-gses-fees-2011-09-19
[2] https://mninews.deutsche-boerse.com/index.php/fhfano-clear-directn-gse-refrmguarntee-fees-rise-more?q=content/fhfano-clear-directn-gse-refrmguarntee-fees-rise-more
One of the reasons why loans take forever to close is that lenders are scared to death that “one little mistake” will lead to a GSE forcing them to buy back the loan. If the GSE rates were not so ridiculously low, this would not be an issue. In fact, if mortgage rates were at market rates, and not government subsidized, lenders would be ambivalent as to loaning their own money, vs. selling off to a GSE. In the long run, we must free up private sources of capital for housing, and getting the GSE’s back on par with market rates is a good first step.
Should have been phased out long ago, like before they started. One of the primary reasons we found ourselves involved in the mess currently going on.