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GSE Fee Reduction Warranted Now
By: The Community Mortgage Lenders of America (CMLA)
CMLA’s renewed call follows a declaration last week by the Obama Administration that it will not allow the GSEs to retain earnings to rebuild their capital base.
Speaking at a Goldman Sachs Conference, the U.S. Treasury’s Counselor on Housing Finance Policy Michael Stegman made it clear the Administration is intent on pursuing a long-term reform legislation strategy, the outcome of which is more than uncertain.Stegman readily acknowledged to his Wall Street audience that both “recapitalization of the GSEs and draws against the existing Treasury backstop due to potential future losses would come at taxpayers’ expense.”
The CMLA believes the Administration should embrace a short-term solution to eliminate GSE risk with certainty pending legislative action.“If the Obama administration is not going to rebuild the GSEs capital, then there is no reason to continue levying excessive GSE fees on financially qualified low, moderate and middle income home buyers,” said CMLA Chair Paulina McGrath.
McGrath noted that the current high level of guaranty and loan level fees were imposed when the risks to the GSEs, from market conditions and weakening counter party financial strength, were considerably greater than they are today. “These fees should be reduced in recognition of a change for the better in market conditions. Failure to reduce these fees constitutes an additional and unnecessary cost on home buyers.”
The GSEs, McGrath said, are “vital to the provision of affordable mortgage credit to American homebuyers. We could support artificially elevated fees if the money were used to rebuild GSE capital levels. However, given Stegman’s declaration and the reduced risks faced by the GSEs, the fees are no more than a tax on American homebuyers or anyone seeking to refinance. The Administration should call it what it is. ”
In fact, she said, “Treasury and the U.S. taxpayers have been more than repaid the federal bailout. The GSEs to date have remitted $220 billion and are on track to be the most lucrative of all 2008 Treasury interventions in the financial sector.”
The GSE imposed higher fees to hedge against market risks that have since lessened significantly. A 25 basis points adverse market fee was imposed when excessive levels of housing inventory and declining values characterized a large number of U.S. markets. “Fortunately the U.S. housing markets nationwide, as well as regionally, are in much better shape today than in the immediate aftermath of the financial crisis,” McGrath said.
Further,the GSEs imposed additional fees on loans with down payments of less than 20 percent of the purchase price of the home. This fee was levied when the mortgage insurance industry, which insures most loans purchased or securitized by the GSEs with down payments of less than 20 percent, was suffering high loss levels and declining capital levels as a result of the financial crisis. The GSEs reasoned that the mortgage insurance industry might not be able to pay all its claims, given the weakened financial condition of the industry, and thus the higher fee was justified. This, of course, is no longer the case as evidenced by very positive financial and enhanced capital levels of the mortgage insurance companies.
About the CMLA
CMLA is the only trade association solely dedicated to advocating for independent, community-based residential mortgage lenders. Founded in 2009, The CMLA is committed to the preservation of a thriving independent mortgage lending sector, which increases competition in the industry and, thus, provides borrowers with greater choice and lower costs. The CMLA membership includes lenders nationwide that, collectively, originate more than $100 billion worth of residential mortgage loans annually. The CMLA works to ensure the interests of its members are effectively represented before members of Congress, Federal regulators and the Executive branch.
For more information, please visit www.thecmla.com and/or direct policy and member inquiries to Glen Corso at 925.323.7084