Fannie and Freddie Charges Hurting Recovery, Consumers?

Posted on March 04, 2010

Brian Chappelle is a respected expert on FHA and the mortgage business.  He wrote a Viewpoint in the May 4, 2010 American Banker that calls out two ways in which he believes Fannie and Freddie’s current policies are hurting consumers and weakening a possible housing recovery.  

Both GSEs are charging up-front fees at closing for borrowers with lower credit scores.  Chappelle makes the point that these fees raise the cost of conventional mortgage financing for borrowers.  It is one of the drivers that has helped the government’s mortgage insurer, the Federal Housing Administration (FHA), swell from less than 3 percent of the market a few years ago to more than one-quarter today.  

Chappelle also criticizes the GSEs for what he characterizes as aggressive buy-back poilcies through which the companies are requiring primary market lenders who provided original loans that are now failing to reimburse them.  While supporting this practice where underwriting guidelines were not followed, leading to defaults, Chappelle argues that the buy-back policies have extended to less clear cut issues.  They are being used in some cases, he argues, as a loss mitigation tool for the companies by trying to force lenders to buy back the loans.