Comment Detail

Comment

The business reason to increase G fees should be based on three things: 1. Cover the current and imbedded losses in loans owned and guaranteed by the respective agency, 2. cover the other operating expenses of the business activities, and 3. build up additional capital reserves to protect taxpayers.
I believe the current fee structure does cover the current and imbedded losses in the current book of business that is either guaranteed or on balance sheet of the GSE's. The entities are generating earnings in excess of their operating costs. Unfortunately, they are not being allowed to build up retained earnings which is contrary to what a reinsurer should be doing.
The hidden costs of increasing G fees is reducing the affordability of housing to homebuyers. This has the social-economic impact of lower home ownership rates which we know are negative for society and retarding the housing industry which we know is a major portion of our economy.
We have to balance these two: Protect tax payers ( risk management goal) and provide affordable access to home ownership for those families that are prepared to be responsible homeowners (social policy goal).
Before an increase in G fees is implemented, we first need to bring GSE reform to a conclusion and resolution. My recommendations/observations:
1. We do not need a major overhaul of our houseing finance system at this time. Fannie and Freddie are operating in the black and have repaid all the advanced money to Treasury. The system isn't broke if the rules are followed and enforced. Treasury should stop sweeping excess earning from the GSE's quarterly and allow them to retain earnings. Fannie and Freddie are reinsurers. What reinsurer operates with zero capital?
2. Once capital is retained in the GSE's, establish a target capital level that will trigger GSE removal from receivership. The two entities should be merged into one. There is no material reason to keep them separate in my view. They operate as a utility.
3. The FHSA can serve as the regulator/auditor for the new GSE to prevent the sins of the last bubble. Their role should be to audit/regulate the book of business the GSE is guaranteeing or owning. They are the traffic cop to issue speeding tickets or suspend licenses to lenders that are not following the rules. The GSE's are doing regular QC checking of loans guaranteed or purchased. They are implementing the same requirements on approved seller/servicers. Their should be very tight limits set on the amount of loans the GSE can hold on balance sheet.

Until Treasury stops receiving the retained earnings generated by the GSE's, no G fee increases should be considered. The system will never become self sufficient until that happens. We have the action steps out of sequence.
Please feel free to contact me if you have any questions. My direct # is 402-434-3462.