Do Fannie and Freddie Charge Too Much for Guaranteeing Mortgage-Backed Securities?
At a February 15 AEI conference, experts considered the question of whether guaranty fees (G-fees) are properly priced or whether institutional barriers are keeping them unnecessarily high. The accounting problems of Fannie Mae and Freddie Mac have focused attention on the two ways they make their profits: a substantial portion of their earnings comes from buying and holding mortgages and mortgage-backed securities (MBS), but they also earn substantial amounts by charging fees for guaranteeing that investors will receive full payment on their MBS. Many observers have noted that Fannie and Freddie’s G-fees are far higher than their actual losses, and recent commentary suggests that these fees add significant costs to what a homeowner might pay on a mortgage–raising questions about whether Fannie and Freddie are really reducing the costs of home ownership. The Office of Federal Housing Enterprise Oversight (OFHEO), the regulator of Fannie and Freddie, has begun an investigation into how
At a February 15 AEI conference, experts considered the question of whether guaranty fees (G-fees) are properly priced or whether institutional barriers are keeping them unnecessarily high. The accounting problems of Fannie Mae and Freddie Mac have focused attention on the two ways they make their profits: a substantial portion of their earnings comes from buying and holding mortgages and mortgage-backed securities (MBS), but they also earn substantial amounts by charging fees for guaranteeing that investors will receive full payment on their MBS. Many observers have noted that Fannie and Freddie’s G-fees are far higher than their actual losses, and recent commentary suggests that these fees add significant costs to what a homeowner might pay on a mortgage–raising questions about whether Fannie and Freddie are really reducing the costs of home ownership. The Office of Federal Housing Enterprise Oversight (OFHEO), the regulator of Fannie and Freddie, has begun an investigation into how
