You can trace the concept of hiking mortgage fees to pay for Government expenses back to the bi-partisan Debt Relief Committee that failed spectacularly in accomplishing anything back in November. One of the key points of agreement in that committee was that Fannie and Freddie guarantee fees could be increased to pay down the debt. Most industry groups strongly oppose Fannie/Freddie fees being used for anything OTHER than paying for expenses and risk related to those entities. Representative Camp seems to believe that increasing the fees will incent the private sector to step into the mortgage market again by making GSE loans more expensive. I’m of the opinion that he’s incorrect – that private enterprises will have no interest in large-scale MBS securitizations unless and until we’ve found a bottom in home values (which won’t happen until we can work through the foreclosure backlog) and the industry knows what all of the implementing regulations for Dodd-Frank will look like. For example, rumor has it that the risk-retention requirement is dead, at least in the form it took with the proposed QRM rule that was issued earlier this year, but we have no official word on that. If it’s dead, what’s next? The statute is pretty clear on risk-retention, even if it did give the Federal banking agencies a lot of latitude to implement it. Right now, the only certainty is uncertainty, and that’s not an environment that business likes.

Either way, using Fannie and Freddie fees to pay for non-housing related expenses is terrible policy (again, in my opinion) because Congress will be tempted to go back to the trough each time they need to pay for some new policy or other. In other words, it addicts Congress to the GSEs at the same time that the stated goal is to UNWIND those agencies. Ironically enough, even the FHFA was opposed to this idea for that reason. Once Congress finds a new revenue source, it is loathe to let go of it, so the lingering question will continue to be what happens to the GSEs in the future? That remains to be seen.

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