No G-Fee Increases: NAFCU, CUNA to FHFA
NAFCU and CUNA urged the Federal Housing Finance Agency to abandon its proposed increases to guarantee fees, which the groups argued would hurt the housing market.
The FHFA’s plan would raise the base g-fee for all mortgages by 10 basis points, change the up-front fees charged to borrowers in different risk categories and eliminate the 25-basis point “adverse market charge” in most states. G-fees are charged by Fannie Mae and Freddie Mac to protect their portfolios against credit losses.
“Any change to the g-fees Fannie Mae and Freddie Mac charge may have potentially devastating impacts on an already very fragile and uncertain housing market. A continued dialogue with the industry is vital to ensure that an increase in g-fees does not cause a reduction in available credit for consumers,” NAFCU Regulatory Affairs Counsel Angela Meyster said in a Sept. 8 comment letter about the proposal.
“The primary goal of the FHFA in setting g-fees should be to ensure that Fannie Mae and Freddie Mac remain sustainable, while not raising fees to a level that would significantly drive up the cost of borrowing and reduce lending,” she added.
Mary Dunn, CUNA senior vice president and deputy general counsel, shared a similar view concerning the proposal’s effect on the housing market.
“G-fees are a critical risk management tool used by Fannie Mae and Freddie Mac to protect against losses from faulty loans, and should be used only to manage the companies’ credit risk and meet the costs of operations,” she wrote in a Sept. 8 comment letter.
“Increasing g-fees for other purposes, such as to reduce the enterprises’ footprint before comprehensive housing finance reform can be passed, effectively taxes potential homebuyers and consumers wishing to refinance their mortgages. G-fee increases unrelated to housing could also act to hinder the necessary reforms required of the housing finance system by changing the political calculus for policymakers,” she added.
Meyster said raising g-fees would increase the cost of borrowing and slow down lending.
“Rather than increasing g-fees, NAFCU believes reducing g-fees or keeping them at their current level is necessary to the continued recovery and stabilization of the housing market,” she said.
“Further, loan originations would inevitably decrease if the enterprises continued to raise g-fees because the rising cost of mortgage lending would either need to be absorbed by the lender or passed on to the borrower, in the form of risk-based fees or higher interest rates,” she added.
Meyster also said now is not the time to impose higher fees since the number of home sales is declining and prices are increasing.
“The median price for new homes is 17.6% higher than two years ago and existing home prices are 22% higher than two years ago. Many potential buyers, especially young households, are being priced out of the market,” she said. “Imposing additional costs to borrowing, especially on those borrowers who are creditworthy and finally ready to enter or re-enter the housing market, is both unfair to the borrowers and damaging to the housing market as a whole.”
Despite some signs of improvement in the housing market, Dunn urged the FHFA to avoid taking any steps that could impede a recovery.
“There are signs that higher costs combined with a nascent rise in mortgage rates will stymie a more robust housing recovery,” she said. “Even with rates remaining near historic lows, data during 2014 has shown that recent housing market gains may be short-lived. Just last week, Fannie Mae Chief Economist Doug Duncan lowered his single-family housing start forecast for 2015 by 14.2% – from 913,000 to 783,000.”
Meyster recommended the FHFA withhold any g-fee increases until “stable agency- and non-agency secondary markets have been established.” Dunn said any future fee changes should be made solely on data.
“Raising g-fees due to policy goals, not based on hard data about the real risks involved to the taxpayer, will cause home-buying taxpayers to be charged excessive fees in the name of policy goals that may be debated,” she wrote.