U.S. banks have a solution to getting the government out of the mortgage market: Higher guarantee fees.
An increase in G fees at Fannie Mae and Freddie Mac should be used as the primary tool for the government’s exit, a letter Wednesday from the American Bankers Association to Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan said.
In addition to increasing the incentive to utilize the private market, an increase would compensate the government with a healthy return for ongoing support given potential bad asset losses.
“By dialing up the G fees in an orderly and well-detailed manner, eventually the private market will find itself in a position where it is better able to compete with the GSEs for business,” ABA President and Chief Executive Officer Frank Keating said in a statement. “The end goal we envision is a housing finance market in which more than half of mortgage finance occurs without federal secondary market guarantees of any type.”
But Keating acknowledged that such a transition could take years.
The bankers want the government’s role “dramatically reduced,” according to Keating.
ABA also desires a “well-regulated covered bond market” that Keating says “should be the desired financing source for the bulk of borrowers whose income and credit rating qualify them for conventional financing.”
In addition, Fannie and Freddie’s smaller government-sponsored rivals — the Federal Home Loan Banks — should be ratcheted up a notch to help provide liquidity to private-market portfolio lenders.
Another recommendation outlined by the Washington, D.C.-based trade group was the creation of more reasonable loan limits for Fannie and Freddie purchases.
read full ABA letter
