Last year, 25 Trade Associations wrote to Federal Housing Finance Authority (FHFA) Director Mel Watt pleading with him to reduce Guaranty Fees and Loan Level Price Adjustments imposed by Fannie Mae and Freddie Mac (the Government Sponsored Enterprises, or GSEs) that are passed on as increased costs to homebuyers. These are fees that Fannie Mae and Freddie Mac layer on top of the mortgage interest rate that most borrowers pay. In theory, these fees are intended to fund the "government backstop" of the mortgage market to ensure that mortgage investors get paid even if homeowners fail to make their mortgage payments. However, after going broke during the foreclosure crisis, the GSEs have gone too far in resetting these fees. The fees have gone up nearly every year since 2010, while the risk on loans they have purchased has gone down, thanks to important mortgage market reforms ushered under the Dodd-Frank Wall Street Reform Act and Consumer Protection Act. As a result, millions of consumers are "boxed out" of homeownership opportunity because of these excessive fees. The Federal Housing Administration (FHA), which competes with the GSEs, has reduced its fees for the same type of risks even though its insured loans do not perform nearly as well as loans purchased by Fannie Mae and Freddie Mac.
There is little correlation between the risk posed by the mortgage borrower and the excessive fees charged by Fannie Mae and Freddie Mac. Millions of potential homeowners are negatively impacted, and it is imperative that they be lowered to rational and actuarially sound levels.
