September 3, 2014
Hon. Mel Watt
Federal Housing Finance Agency
400 7th Street SW
Washington, DC 20024
FHFA Request for Input – Guarantee Fees
Dear Director Watt:
The Community Home Lenders Association (CHLA) writes to offer our comments in response to the Invitation for Comment on Enterprise G Fees. We offer these comments in our capacity as the only national association exclusively representing nonbank mortgage bankers.
The CHLA believes that any additional increase in G Fees is unwarranted, particularly since G Fee increases have not and will not be used to bolster Enterprise reserves under the current Treasury Agreement. If G Fee increases were being used to build up Enterprise reserves, instead of being swept under the Treasury Agreement, we would be more open to such increases. However, the main effect of a further fee increase would be to negatively affect potential homebuyers, particularly minority and low and moderate income homebuyers, while having an imperceptible impact on bringing private capital back into our mortgage markets. And, if the primary goal is to bring private capital back into our mortgage markets, we believe, as we expressed in a letter to FHFA last month, that the best way to do this is to accelerate pilot efforts to do Enterprise risk sharing, in a manner that tests out key issues of access and affordability.
CHLA also writes to comment in support of FHFA adopting a more explicit policy of G Fee parity, along with other policies to ensure equitable treatment of all lenders by size and volume, in other areas such as LP/DU waivers and the terms of seller-servicing contracts. CHLA suggests the following:
1. TRANSPARENCY. Enterprise pricing policies should be fully transparent.
2. G FEE PARITY. Approximate parity should be replaced by an explicit policy of parity.
3. OTHER DISPARITIES BASED ON VOLUME AND SIZE. The Enterprises should not utilize other proxies for pricing which create disparities based on the size or volume of the seller/servicer, and should not discriminate based on lender volume or size in areas such as LP/DU waivers or the terms of seller-servicing agreements.
4. REVIEWS TO ENSURE EQUITABLE TREATMENT. The FHFA should engage in detailed, periodic reviews of Enterprise pricing and other policies with a sample that includes seller-servicers of different size and type, to determine whether pricing differentials or other disparities exist.
LEVEL OF G FEES
The CHLA applauds the policies outlined in your latest Report, which result in a re-focus on the
Enterprises’ meeting the mortgage credit needs of our nations homebuyers and our housing markets, moving away from a prior somewhat singular focus on taxpayer protection. We believe both objectives can be accomplished simultaneously, with balanced policies. In that light, we applaud your taking a pause on the pending G Fee increases upon your taking over as Director, including inviting comment.
In the last few years, we have witnessed a strong run-up in the level of G Fees, including one increase mandated by Congress for extraneous pay-for reasons unrelated to housing policy. These increases have bolstered Enterprise profits and priced the guarantee more in line with private sector risk.
Unfortunately, these increases have not been used to bolster Enterprise reserves, in order to create a cushion against potential profitability downturns in the future. CHLA would be more open to G Fee increases if they were used to bolster reserves, in order to cushion the Enterprises against any future downturns. CHLA believes it would be unfortunate if the Enterprises were forced to resort to belt tightening with respect to mortgage credit availability if there was a downturn in their finances following years of strong profitability – simply because the profits in the good years were not retained as reserves.
Moreover, there is no real evidence that these increases have had an impact in bringing private capital back into our mortgage markets. Therefore, CHLA has serious concerns that an undifferentiated policy of continuing to ratchet up fees in the hope, unsupported by empirical evidence, that this will make the difference in brining private capital into mortgage markets.
Moreover, the main effect of a further fee increase would be to negatively affect potential homebuyers, particularly minority and low/moderate income homebuyers, This occurs at a time when the housing market is fragile – experiencing some improvement but with a continued overhang of properties in the foreclosure process and a large segment of recent cash purchases for rental, which require home purchases as an exit strategy.
If the objective is to bring private capital back into the market, we believe a far better approach is to focus on a significant expansion of risk sharing pilots. We recently wrote you to express our support for this approach, which has the added benefit of testing out access and affordability and pricing issues as a transitional step to comprehensive mortgage reform
PARITY IN PRICING AND TERMS AND CONDITIONS
CHLA believes that an issue that is equally important to the level of G fees is the issue of G Fee parity. We are pleased that in recent years, the Enterprises have narrowed pricing discrepancies between small and large lenders, particularly TBTF banks. Yet, based on anecdotal evidence, pricing discrepancies based on lender size and loan volume still exist. We believe this is not appropriate for the Enterprises, whose loans continue to enjoy a federal guarantee, and are entering their 7th year of conservatorship.
Therefore, CHLA recommends adoption of an explicit policy of parity with respect to G Fee pricing.
We also believe there may be other proxies being used by the Enterprises that effectively result in pricing discrimination based on lender size and volume, such as buy-up and buy-down grids, credits, and lower LLPAs. We also believe that there may be disparities based on volume and size in other areas, such as LP/DU waivers, terms of seller-servicing contracts, and repurchase policies. Without an in depth examination of these factors, it is impossible to know whether and to what extent the Enterprises treat different lenders differently based on size and loan volume.
Therefore, CHLA recommends that the FHFA carry out detailed, periodic reviews of Enterprise pricing and other policies through a sample that includes seller-servicers of different size and type, to determine whether pricing differentials or the other types of disparities identified above exist.
Finally, we understand the Enterprises compete with each other and with private sector entities and do not want to disclose all their business practices. However, without full transparency in the areas identified above, there is no way to know whether pricing and other disparities based on size volume exist.
Therefore, CHLA recommends that the FHFA require the Enterprises to provide complete public transparency with respect to pricing and proxies for pricing, and other key policies such as LP/DU waivers and terms of seller-servicing contracts.
We thank you for consideration of these comments.
COMMUNITY HOME LENDERS ASSOCIATION