WASHINGTON Federal Housing Finance Agency Director Mel Watt just made one of the biggest policy decisions of his 14-month tenure but so far it has hardly caused a ripple on Capitol Hill.
In December, his decision to capitalize the housing trust fund drew an immediate backlash from Republicans. But the reaction to his move last week to make only modest adjustments to the loan fees that Fannie Mae and Freddie Mac charge borrowers has been muted so far.
The FHFA opted to keep guarantee fees at current levels and tinkered with other loan fees, effectively leaving the status quo.
To be sure, Senate Banking Committee Chairman Richard Shelby, R-Ala., contends that Watt should have increased G-fees in order to encourage private capital back into the market.
"FHFA should take steps to protect American taxpayers instead of steps that expose them to further risk," Shelby said in a statement issued Monday.
But beyond that, there was little reaction by lawmakers. House Financial Services Committee Jeb Hensarling, who often chides his former Democratic colleague after a significant decision, did not release a statement and a spokesman did not return calls seeking comment.
Beyond Washington, however, the reaction was more critical, particularly among housing advocates who want to see a reduction in the G-fees, which currently add between 50 to 60 basis points to the cost of loans guaranteed by Fannie and Freddie.
"The FHFA has taken some modest steps in the right direction, but they do not go nearly far enough," said Jesse Van Tol, the chief of membership and policy at the National Community Reinvestment Coalition. "We are disappointed that FHFA did not take this opportunity to substantially reduce guarantee fees. A significant reduction in guarantee fees would stimulate the housing market and help to increase access to home loans for low- and moderate-income borrowers."
The National Association of Realtors, meanwhile, was at least pleased with the FHFA's elimination of the 25-basis-point adverse market delivery imposed on borrowers in 2008 when housing prices began rapidly falling.
But the group criticized the FHFA for also raising fees on certain jumbo loans with principal balances above $417,000.
"These increased fees are questionable and unnecessary to protect against risk during a time of historically low homeownership rates," Chris Polychron, the president of the Realtor group, said in a press release.
Increasing these fees "only maintains the status quo without creating incentives for more private sector lending."
The FHFA adjusted fees on other loans to make up for the loss of revenue stemming from the elimination of the adverse market fee.
The agency will impose a 37.5-basis-point fee on cash-out refinances, investment properties and loans with simultaneous secondary financing (piggyback loans).
However, the new loan fee schedule favors first-time homebuyers. The FHFA did not impose new fees on first-time and other borrowers with down payments of less than 20% and credit scores below 700. They are the only borrowers that will get the full benefit of the elimination of the adverse market fee.
Overall, Watt made a "balanced decision," according to David Stevens, the president and CEO of the Mortgage Bankers Association.
Many lenders are disappointed that the FHFA didn't reduce the G-fees, but Stevens said they should instead be "thankful" that a 10-basis-point increase in the fee was also rejected.
"The best news is it gives certainty to the lending community and the investment analysts by keeping fees level and not putting through the increase that had been originally proposed," Stevens said.
Julia Gordon, senior director of the Center for American Progress, called the FHFA's decision a "missed opportunity." She expressed disappointment that the agency did not make further reductions in the loan-level pricing adjustments, or LLPAs, as well as about new capital rules for private mortgage insurance.
"If you combine the failure to reduce the LLPAs with the new capital requirements for PMIs, you are kind of cementing the status quo and we see how well that is working for this broad chunk of the population," Gordon said Tuesday at a National Association of Realtors forum on the state of the U.S. housing market.
But other industry representatives saw the capital rules as a positive.
The new standards have put the PMI industry in a "great position to protect the taxpayers and Fannie and Freddie," said Brad Shuster, the chairman and chief executive of National MI, who also spoke at the NAR event.
He noted that the government-sponsored enterprises are experimenting with risk-sharing transactions that could reduce financing costs for borrowers.
Currently, private mortgage insurance reduces Fannie and Freddie credit loss exposure down to a 65% loan-to-value ratio. In risk-sharing deals, the PMI companies could take it deeper, to a 50% LTV, and reduce the LLPAs accordingly.
"You can actually offer the borrower a lower coupon on the mortgage," Shuster said. "So you can increase the availability of mortgage finance."
