Comment Detail

Comment

Address: P.O. Box 259, Brentwood, TN 37024 | Phone: 866-288-3537 | Website: www.investorsunite.org
June 18, 2014

The Honorable Mel Watt
Director
Federal Housing Finance Agency
400 7th St., SW
Washington, DC 20024

Dear Director Watt:
In response to the Federal Housing Finance Agency’s (FHFA) request for input on proposed
increases to guarantee fees (g-fees) that Fannie Mae and Freddie Mac charge lenders, the
Investors Unite Coalition, on behalf of all GSE shareholders, encourages you to consider this
decision within the context of Treasury’s 100 percent net worth sweep of the enterprises. Simply
put, as long as Treasury is taking all of Fannie and Freddie’s profits, any increase in g-fees
would amount to nothing more than a new tax applied to general deficit reduction.

As you know, g-fees were historically determined by the GSEs and FHFA does not have a
mandate as conservator to run the GSEs as not-for-profit entities. We urge you to adhere to a set
of principles that takes into account the critical purpose of setting appropriate guarantee fees
while respecting the rights of all economic stakeholders, including the GSE’s shareholders.

Ideally, after undoing the 2012 sweep, when setting guarantees fees, FHFA should also take into
full consideration that:

1. Fannie Mae and Freddie Mac have profit-making purposes onto which public mandates
are layered, and they should charge guarantee fees that earn an appropriate market-based
return on the capital employed, whether taxpayer capital or private capital. This is an
absolutely critical factor “other than expected losses, unexpected losses and G&A fees”
that should be considered when determining g-fees.

2. Increasing guarantee fees will provide more cash flow with which the GSEs can build
capital and be restored to “safe and solvent condition.” Maximizing returns is not only
consistent with, but arguably required by, the conservatorship.

3. FHFA as conservator has legal duties to the direct economic stakeholders – including all
shareholders – that must be respected alongside the interests of other parties.

4. Earning an appropriate return on capital is entirely consistent with the conservatorship
and affordable housing mandates. There is no conflict here between the GSEs building
capital and setting aside funds for affordable housing. Indeed, it is only when the GSEs
have earned their way back to a “safe and solvent condition” that they can sustainably
meet their public affordable-housing mandates. After the GSEs have adequate capital, the
Address: P.O. Box 259, Brentwood, TN 37024 | Phone: 866-288-3537 | Website: www.investorsunite.org
suspension of those mandates can be reversed, i.e. the affordable housing support can be
turned back on.

5. Keeping guarantee fees low to support the housing market in general, including
homeowners and homebuyers that are well off and do not need help, is not as important
as charging higher guarantee fees (a) to build a capital base to protect against future
credit losses, and (b) to redistribute a portion of earnings to targeted constituencies that
particularly need financial support.

6. Guarantee fee rates should be tied to sound underwriting standards. If FHFA directs the
GSEs to relax underwriting standards, it is essential that guarantee fees be adjusted
upwards to account for the greater credit risk assumed in doing so.

Ultimately, g-fees profits should be allowed to stay within the housing market and should be set
at levels that help ensure safety and soundness of the GSEs, that protect long-term health of the
housing market, and that respect the rights of all economic stakeholders-including the GSE’s
shareholders.

On behalf of our coalition and all GSE shareholders, thank you for your time and consideration.
Sincerely,

Tim Pagliara
Executive Director
Investors Unite
P.O. Box 259
Brentwood, TN 37024