FHFA Requests Input on Single-Family Pricing Framework
Written By: Joel Palmer, Op-Ed Writer
The Federal Housing Finance Agency (FHFA) officially issued a Request for Input (RFI) on Fannie Mae and Freddie Mac’s (the Enterprises) single-family pricing framework just a few days after rescinding a key upfront fee set to take effect August 1.
The agency said the aim of the RFI is to solicit public feedback “on the goals and policy priorities that FHFA should pursue in its oversight of the pricing framework.”
FHFA also seeks input on the process for setting the Enterprises’ single-family upfront guarantee fees. This includes a discussion on whether it is appropriate to continue to link upfront guarantee fees to the Enterprise Regulatory Capital Framework (ERCF), which was established in 2020, and has a significant impact on the risk-based pricing component of the Enterprises’ guarantee fees.
“Through this RFI, FHFA seeks input on how to ensure the pricing framework adequately protects the enterprises and taxpayers against potential future losses, supports affordable, sustainable housing and first-time homebuyers, and fosters liquidity in the secondary mortgage market,” said Director Sandra L. Thompson. “We are committed to being transparent and to considering views from a diverse set of stakeholders and market participants.”
Guarantee fees are intended to cover the enterprises’ administrative costs, expected credit losses, and cost of capital associated with guaranteeing securities backed by single-family mortgage loans.
In 2022, the enterprises began using the ERCF for measuring the profitability of new mortgage acquisitions, among other purposes. At the time, FHFA took steps to update the single-family guarantee fee pricing framework to better align the pricing and capital frameworks. The updates were intended to increase support for creditworthy borrowers limited by income or by wealth, while ensuring a level playing field for small and large sellers, foster capital accumulation, and achieve commercially reasonable returns on capital.
FHFA said that, in general, the ERCF capital requirements are substantially higher than the requirements under which the Enterprises previously operated.
The agency’s most recent fee updates has created controversy in the mortgage industry.
In late April, a wave of criticism about updated fee structure prompted Thompson to issue a lengthy rebuttal. The rebuttal was aimed at criticism that FHFA had raised costs for buyers with good credit to subsidize more risky borrowers. Those recalibrated fees took effect on May 1.
Two weeks later, FHFA announced that it will no longer implement a new upfront fee for certain borrowers with a debt-to-income above 40 percent. The additional 0.375 percent fee on home loans that Fannie Mae and Freddie Mac would acquire was set to take effect August 1 after being delayed from its original May 1 implementation date.
In the RFI document, FHFA said it is specifically requesting input on the following topics:
Return on capital, including how the return on capital for the enterprises should be calculated and what is an appropriate long-term commercially reasonable threshold.
Process, including how frequent the agency should consider updating the upfront guarantee fee grids.
Components of guarantee fees, including whether upfront fees should be eliminated and if risk-based pricing should be calibrated to the ERCF.
FHFA invites interested parties to provide written input, feedback, and information on all aspects of the RFI by August 14, 2023. Comments may be submitted via FHFA’s website (select “Enterprises’ Single-Family Mortgage Pricing Framework” from the pull-down menu); or mailed to the Federal Housing Finance Agency, Office of Capital Policy, 400 7th Street, S.W., Washington, DC 20219.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
