On Friday, 46 independent mortgage banks (IMBs) jointly sent a letter to Treasury Secretary Scott Bessent and FHFA Director Bill Pulte, laying out priorities for IMBs for a successful Fannie Mae/Freddie Mac exit from conservatorship.
Spearheaded by the Community Home Lenders of America (CHLA), the only national group that exclusively represents IMBs, this IMB sign-on letter laid out five key recommendations designed to maintain a level playing field, maintain consumer choice, protect smaller lenders and promote healthy competition. The letter was sent just one day before the 18-year anniversary of these GSEs going into conservatorship.
Why is this important for non-bank mortgage lender/servicers? First, because all the signs are there that the Trump Administration is serious about carrying out an exit from conservatorship.
A month ago, it was reported that the Trump Administration is doing serious planning for a secondary offering of Fannie and Freddie stock by the end of the year. And more recently, both Treasury Secretary Bessent and FHFA Director Pulte have mentioned the coming sale of portions of both GSEs to investors.
But the second reason this is important is many don’t fully appreciate how much things could change once Fannie and Freddie are released. After almost 20 years of tight control by FHFA as their conservator, the two GSEs would be unshackled from a host of regulatory dictates and would be then driven by a new key objective — generating a return to shareholders while pursuing the government mandates of the existing statutes under HERA.
Without rules of the road ensuring the companies create safe and sound markets and fair access for all, we saw how that worked prior to 2008. Fannie and Freddie offered volume discounts to reckless lenders like Countrywide and WaMu. This harmed smaller mortgage lenders — and encouraged risky loans and market concentration.
Instead, after 2008, FHFA has moved towards a policy of “G-fee Parity” — identical fees without regard to lender size or volume — and has also directed the development of a robust cash window, to provide fair access to all approved Fannie/Freddie seller servicers.
1. G-fee parity and a competitive cash window
The Trump Administration commendably adopted these policies in January 2021, formally incorporating them in the PSPAs. But we need to further hardwire these reforms. So the number one IMB sign-on letter ask is to make sure these strong G-fee parity and cash window provisions are maximally incorporated in the framework for a GSE conservatorship exit.
2. No Wall Street bank charters for GSE loans
A second concern is that as major Wall Street banks line up to underwrite stock in Fannie and Freddie, they ought not be granted their long-desired goal of gaining a GSE charter, as they tried to do in Congress in 2014. Only a concerted effort by small lender groups, the Realtors, and consumer groups beat this back.
Competition is a good thing, but it should be at the loan origination level, as the GSE model now works — and not by giving anti-competitive charters to mega-banks to use a GSE backstop to exclusively serve their own customers. This is priority number two on the IMB sign-on letter.
3. Keep Fannie and Freddie separate
What about combining Fannie Mae and Freddie Mac into one entity? From the point of view of a secondary stock offering, this might seem attractive to some investment bankers, but what we don’t need is another monopoly being pushed by Wall Street, which is what combining Fannie and Freddie would create. Two GSEs have worked extremely well over the last 18 years; neither has engaged in ruinous competition — but at the same time the competition that has existed between the two is healthy.
Two GSEs enhance innovations important to consumers and community lenders, and also prevent using the advantages of a federal backstop to unreasonably raise G-fees – thus maintaining affordability and enhancing their affordable housing mission.
4. GSEs should maintain critical loan products
The fourth recommendation in the IMB sign-on letter is simple: Fannie and Freddie should maintain critical mortgage products. On its face, this does not seem like a concern — if loans are profitable and safe and sound, we assume Fannie and Freddie will participate.
But the concern — embodied in statutory mission requirements like Duty to Serve — is that Fannie and Freddie might stop purchasing — or reduce their focus on — lower-volume loan products because there aren’t big profits to be made therein.
This could affect critical products like mortgage loans for condominiums, manufactured homes, investor loans which produce affordable housing, and for second homes, which are important to many communities. Remember, post-conservatorship, Fannie and Freddie are much freer to do what they want. Let’s make sure they remain committed to their affordable housing mission, and not just maximizing profits.
5. The GSEs should purchase MBS to lower mortgage rates
Finally, the IMB letter closes on perhaps THE number one concern affecting housing markets and homeownership affordability — high mortgage rates, which are at historically high spreads compared to 10-year Treasuries. But since MBS are arguably undervalued (due to high spreads), this could be a good time for Fannie and Freddie to make opportunistic MBS purchases, which would bring down mortgage rates by signaling other MBS investors to step up.
We understand that are many issues that need to be resolved to achieve a successful Fannie/Freddie exit from conservatorship. These five IMB recommendations don’t cover all issues — but how they are resolved will be critical to ensuring we maintain a competitive mortgage market with robust participation by smaller lenders — and maximum choice for American families.
Rob Zimmer is the Director of External Affairs at the Community Home Lenders of America (CHLA)
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the editor responsible for this piece: Sarah@hwmedia.com
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