As Maya Angelou so aptly said, “When someone shows you who they are, believe them the first time.”
Since the onset of the coronavirus that has plagued this nation we have watched policy makers and their varied responses at both the state and federal level. When it comes to housing and mortgage finance perhaps the most shocking thing is how the FHFA and the GSEs have simply ignored their role and used this time to threaten nonbank mortgage servicers facing liquidity problems, adding outrageous fees to borrowers faced with job loss as they utilized the legislated forbearance option, and this week adding a 50bp fee on refinances.
To be clear, the GSEs, and their regulator the FHFA, have done little to support the extraordinary efforts that have been done by the Federal Reserve and Congress to date. All of that loan volume that each and every lender is doing is the result of the Fed’s actions, with the GSEs simply being the passive receiver of billions of dollars in new G-Fee revenue.
The profits posted by both GSEs in their recent earnings are only because the of the quantitative easing from the Federal Reserve. Powell is the hero here, and Calabria and the GSEs are simply cleaning up on their actions.
To be clear: don’t listen to their claims that they need to build their coffers for future losses from delinquencies and potential foreclosures. These two companies have stripped unexpected billions of dollars from COVID directly into their profits due to the fed created “short,” the result of these massive MBS purchases. Don’t let them get away with that excuse when every other federal and state agency is bleeding billions of dollars to support consumers, support businesses, and stabilize the market.
It’s time for all to recognize what is happening here.
Director Calabria has one goal and that is to fully privatize the mortgage market and leave the GSEs as nothing more than a counter-cyclical last choice for the housing market. Calabria has written, spoken, and testified for years on his view that the mortgage market should be fully privatized.
In this testimony given before congress in March of 2011 Calabria stated this: “Reducing the competitive advantage of Fannie Mae and Freddie Mac via a mandated increase in their guarantee fees would both help to raise revenues while also helping to “level the playing field” in the mortgage market. Given that the federal taxpayer is covering their losses and backing their debt, along with the suspension of their capital requirements, no private entity can compete with Fannie Mae and Freddie Mac. We will never be able to move to a more private market approach without reducing, if not outright removing, these taxpayer-funded advantages.”
Since the onset of COVID-19, and despite heroic efforts by the Fed and Congress with the most extraordinary intervention, the FHFA has simply shown the proverbial middle finger to the housing finance system, to consumers, and especially to nonbank lenders who have been critical to credit availability in creating home ownership.
Calabria has taken multiple steps in his singular effort to change the GSE model amidst this pandemic.
- After the CARES Act was passed in March and implemented that first week of April, FHFA refused to do its duty in support of the act and withheld any liquidity support for mortgage servicers, a direct attack particularly on the massive nonbank servicing market. This immediately resulted in a pull back in servicing values and servicing buyers, directly raising rates beyond where they might otherwise be. FICO and LTV overlays as well were put in place to reduce risk and thus constrained credit availability.
- When it became clear that some borrowers might face job loss shortly after closing on their mortgage, Calabria made clear that the GSEs would not help consumers facing harms way and put a policy in place making cash out refinances ineligible for sale and all others facing hundreds of basis points in delivery fees if they entered forbearance after settlement but before sale. Immediately we saw a pull back in refinance policy especially cash outs.
- Then this week, Calabria and the GSEs have rolled out an across-the-board 50 bp delivery fee on all refinances. This is a direct hit to consumers and will end up as extremely large costs to the pipelines of loans in process that already have their rates locked in. As MBA’s Bob Broeksmit told the Wall Street Journal: “For the GSEs to add a 50 basis-point surcharge on refinances when the nation is struggling with the greatest economic downturn since the Great Depression is outrageous.”
All of this comes while Calabria has proposed a capital rule that would raise pricing across the board, consistent with his manifesto for leaving a crippled GSE model as they are “released” from conservatorship. He has raised multiple biased attacks against nonbanks despite the fact that non-banks have never been the source of federal intervention during financial meltdowns.
In fact, Calabria has always worked to curtail the non bank market stating in that same 2011 testimony, “Moving more of the mortgage sector to banks and thrifts would also insure that there is at least some capital behind our mortgage market.“
It’s time to take the gloves off. The FHFA is not a friend to the housing community and failure to be vocal will be perhaps the greatest mistake industry leaders can make. This isn’t about protecting taxpayers, this is about increasing the cost and availability of mortgages for hard working Americans in the middle of a global pandemic. That’s shameful.
