GSEs Allowing Less Risky Loans To Subsidize Riskier Ones
July 30 2009 - 11:29AM
Dow Jones News
Fannie Mae (FNM) and Freddie Mac (FRE) have been using fees they
collect for guaranteeing less risky single-family mortgages to
subsidize the fees for backing riskier loans, their regulator said
Thursday.
As a result, borrowers with 15-year fixed-rate mortgages and
adjustable-rate mortgages were subsidizing borrowers with 30-year
fixed-rate mortgages, which are more risky for the mortgage giants
to guarantee.
"The riskiest loans were not fully charged for the additional
expected costs associated with them," Federal Housing Finance
Agency Chief Economist Patrick Lawler said at a panel
discussion.
The findings are a result of a study by FHFA of the fees the
mortgage giants charge for guaranteeing loans. Mandated by a
housing law passed last year, the study was furnished to
Congress.
Lawler, in response to a question from the audience, said FHFA
should consider whether such a fee structure was desirable.
"I think it should be part of the debate about the future of
Fannie and Freddie," FHFA Director James Lockart said.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com