WASHINGTON – Federal Housing Finance Agency director Mark Calabria defended the controversial Fannie Mae and Freddie Mac fee in a virtual hearing with House legislators on Wednesday.
Calabria testified before the House Financial Services Committee, where members of both parties questioned the refinancing fee. The additional fee is meant to help Fannie and Freddie with shoulder losses related to the COVID-19 pandemic, but the fee could add an estimated $ 1,400 to the average consumer.
"Rather than allowing homeowners to benefit from historically low mortgage rates, Director Calabria announced a new refinancing fee that would divert some of the savings that would otherwise have gone into the pockets of families into the pockets of Fannie and Freddie," Maxine said Waters, Chair of the House Financial Services Committee, D-Calif.
North Carolina Rep. Patrick McHenry, the top Republican on the committee, said the August 12 introduction of the fee was problematic but understood that Fannie and Freddie had to meet their financial obligations. Fannie and Freddie originally planned to collect the fee on September 1st, but this has been postponed to December 1st following a backlash from the mortgage industry.
"Under the GSEs' charters, they have to get those costs back through the revenue," said FHFA director Mark Calabria.
"The way this was advertised and the three-week initial implementation time frame made it fail from the start," said McHenry. "It is clear that the FHFA has a legal obligation to ensure that the GSEs operate safely, soundly and have sufficient resources to meet their obligations."
Calabria argued the fee was necessary to cover projected losses of around $ 6 billion as a result of the pandemic, which the two companies are required to legally recoup. He also said the fee, 0.5% on refinanced mortgages, was lower than the fee Fannie and Freddie initially charged. The government sponsored companies will also exempt mortgage loans with a balance less than $ 125,000 from the additional cost.
"According to the GSEs' charter, they have to get these costs back through income," said Calabria. “This was Fannie and Freddie's suggestion, and as a safety and solidity regulator, if two trillion dollar companies come up to me and say if they can't increase their income, they just run the risk of an emergency to take. I can't just ignore the instability in the mortgage market. "
Calabria indicated that Congress could prevent the fee by providing GSE with funding to cover losses related to coronavirus. The FHFA has suggested that Fannie and Freddie's losses were partly due to forbearance policies mandated in the recent Coronavirus Aid, Relief and Economic Security Act.
"Since this fee results from costs arising from the unfunded CARES bill, Congress could of course fund this," Calabria said. "I think it would have to be near $ 10 billion to make sure we don't have to reevaluate fees that would cover the cost of COVID."
Calabria made it clear that it did not support a possible decision by Congress to legally provide funding to Fannie and Freddie. He said the refinancing fee was a sensible move.
"That fee is about five basis points per year on the loan," he said. "That is less than the mortgage rates that fluctuated during that hearing."
Calabria has also been pressured by members to extend the foreclosures and evictions freezes announced by the FHFA at the start of the pandemic.
"Earlier this year, the FHFA took the administrative step to extend the foreclosure and eviction moratoria on GSE-supported single-family homes to the need of the year," said Rep. Nydia Velazquez, D-N.Y. "Have you considered extending any of these moratoriums until 2021?"
Calabria said the FHFA would consider extending the freeze period "if the data and evidence at the time suggests we need to extend it".
Lawmakers also questioned Calabria about its plans to eventually release Fannie and Freddie from their federal conservatories.
Rep. Brad Sherman, D-Calif., Told Calabria that he does not support the privatization of Fannie and Freddie.
"They have done very well and made money for the taxpayer in their current situation," said Sherman. "If it's not broken, we don't have to fix it."
Calabria said he believed it was his legal responsibility to discharge the GSEs from the conservatory.
"According to the law, these are not government agencies," said Calabria. "By law they are private companies and I have to abide by the law whether I think it makes sense or not."