Dallas-Fort Worth Real Estate Investor Club

Cash Grab by Fannie and Freddie

  • 13 Aug 2020 5:59 PM
    Message # 9163407

    Back during the housing crises there seemed like an almost daily update of companies going under, job loss, foreclosures, etc. And while we aren't there we had a pretty big announcement today in my field after Fannie Mae and Freddie Mac announced a new 50bps loan pricing adjustment on all refinance loans purchased on or after September 1st – so basically, nearly every loan that is being refinanced by them.

    The move, obviously meant to "help" our struggling, coronavirus-weakened economy, comes at the directive of the FHFA and is meant to curb the “higher risk and costs” associated with refinance mortgages (yeah, right). This coming after Freddie Mac and Fannie Mae enjoyed record earnings in Q2 of $1.8 billion and $2.5 billion, respectively. This is an obvious cash grab by the agencies. Some say, the move was meant to bolster the GSE’s capital levels as they prepare to blast back out in to the private sector; an interesting move, given how effective the Federal government has used the GSEs as an effective vehicle for taxing American homeowners. To be sure, most Americans have absolutely no clue how the GSE’s even work.

    As for the market, my sense is that it will take several weeks for it to adjust to this new pricing hit on Refis. A 50bp pricing adjustment is roughly equivalent to an extra 1/8th in interest rate – an 1/8th that homeowners will unwittingly pay on loans going forward when they lower their monthly mortgage payment. What’s not apparent at the moment, is how will other components of pricing react – namely, servicing values, MBS pricing, and spreads between mortgage rates and treasury rates. We’ll certainly see some movement and at the end of the day, the net-impact on borrowers will be something lower than 50bps. Interest rates were under pressure for the 4th day in a row after Initial Jobless Claims came in just below 1 million for the first time in 21 weeks – a positive sign for our country. While the yield on the 10yr moved above support at 71bps, mortgages closed the day sharply unchanged… see – already reaping the benefits of the new pricing adjustment on Refis!

  • 14 Aug 2020 4:41 PM
    Reply # 9165400 on 9163407
    Robin Carriger (Administrator)

    In case you're not familiar with some of the acronyms Andrew used in his post...

    Federal Housing Finance Agency (FHFA)

    Government-Sponsored Enterprise (GSE)

    Mortgage-Backed Security (MBS)

    I know that doesn't thoroughly translate everything he said, but maybe it helps a little.

    Andrew, My question is on the speculation embedded in the statement "Some say, the move was meant to bolster the GSE’s capital levels as they prepare to blast back out in to the private sector; an interesting move, given how effective the Federal government has used the GSEs as an effective vehicle for taxing American homeowners."  In what way are "some" expecting Fannie, Freddy, etc. to "blast back out into the private sector?"  I didn't realize they'd pulled back from the private sector.

  • 16 Aug 2020 9:11 PM
    Reply # 9168900 on 9163407

    Ah, so Robin, this is a deeply internal subject in the mortgage industry.  To summarize is for the sake of time Fannie and Freddie both (or their FHFA director) have expressed interest in ending their government conservatorship somewhere in the time frame of 2022-2024.  However, the agencies are going to be required to have significant capital to do this (somewhere in the range of $234 billion).  So in May, they announced they would likely raise fees by about .10 (which is such a small fee that most would not even see it)....so raising it to .50 is a pretty big fee (it equates to about .125 of a rate increase....or about a $1400 fee on a $200,000 mortgage).  So will you see a completely different Fannie Mae and Freddie Mac in the next 2-5 years?  And that is likely going to be the case.  Hope all of that makes sense. 

Powered by Wild Apricot Membership Software