Fannie Mae and Freddie Mac said a proposal from the Federal Housing Finance Agency to boost their capital could make mortgage borrowing more expensive.
Both of the government-sponsored enterprises said the proposed capital rule would mean they might have to raise the guarantee fees they charge to package home loans into securities that are sold to bond investors.
“Higher capital requirements would require the enterprises to have more equity capital, and as equity capital increases, the enterprises must earn more to maintain the same return on equity,” Fannie Mae said in a comment letter on Friday. “For Fannie Mae’s business model, the most viable source of higher earnings would be increases to guaranty fees.”
The FHFA should take into account the impact higher fees would have on housing affordability, the mortgage giant said.
“The final capital framework should take into account the potential impact of such guarantee fee increases on the borrowers Fannie Mae serves and housing affordability generally,” the Fannie Mae letter said.
Fannie Mae said fees would likely rise 0.2 percentage points on average, after making certain assumptions. Freddie Mac said fees might have to rise between 0.15 percentage points and 0.35 percentage points.
“Higher capital costs would be borne in part by investors in the form of higher guarantee fees and lower return on UMBS,” Freddie Mac said in a separate letter. “Ultimately, home buyers would face higher borrowing rates from a flow-through of higher guaranty and resecuritization fees.”
In May, the FHFA proposed that Fannie Mae and Freddie Mac be required to hold about $240 billion in capital combined, based on their September 2019 assets. The funds are aimed at ensuring taxpayers don’t have to cover losses for the two companies, which have been in government control since they were seized in 2008 in the midst of the financial crisis.
FHFA Director Mark Calabria has been pushing to recapitalize the GSEs and free them from government control, a plan that’s known as “recap and release.” The comment period for the proposed capital rule ended on Monday.
Whether Calabria’s goal of releasing the companies could be realized if President Donald Trump fails to win reelection on Nov. 3 was put into doubt by a Supreme Court decision in June. The fallout from the ruling that allowed the firing “at will” of the head of a single-director agency meant that Calabria’s position would be uncertain in a new administration.
When the FHFA was set up in 2008 as the watchdog for Fannie Mae and Freddie Mac, the five-year tenure of the director who could only be fired “for cause” was seen as giving the agency some independence. After the high court’s ruling, a Biden administration could attempt to remove Calabria on day one.
