Fannie Mae and Freddie Mac’s federal regulator is gradually increasing the guarantee fees charged by the mortgage giants without having defined exactly what its goal of “increased private sector investment in mortgage credit risk” means, or setting benchmarks to evaluate its performance toward that goal.
That’s according to a report released today by the Federal Housing Finance Agency’s Office of Inspector General.
Fannie and Freddie generated $12.5 billion in revenue in 2012 from guarantee fees they charge to protect investors in their mortgage-backed securities (MBS) against losses, the OIG report said.
Guarantee fees are a hot-button issue, amid fears that lawmakers will use their ability to increase Fannie and Freddie’s guarantee fees in order to raise money to fund legislation with little or no connection to housing.
The fees have nearly doubled since 2011, with one increase tied to legislation designed to offset temporary reductions in federal payroll taxes, and the other tied to FHFA’s initiative to increase private investment in mortgage credit risk. Mortgage rates paid by consumers purchasing homes or refinancing go up about one-eighth to one-quarter of a percent each time guarantee fees are increased.
While there is talk of replacing Fannie Mae and Freddie Mac on Capitol Hill, many expect the mortgage giants will be around for years. Even if Congress does take action, it is likely there could be a significant, possibly lengthy, period of transition during which FHFA would continue to increase guarantee fees, the OIG report said.
“FHFA plans further Enterprise guarantee fee increases to spur private sector mortgage investment,” the OIG report said. “However, it is not yet clear how high FHFA must increase guarantee fees to achieve its objectives, and, accordingly (it) will gradually raise fees given concerns about the potential impact on the housing finance system.”