Tweet December 7, 2012 -- Raising Fannie/Freddie Guaranty Fees

Edward DeMarco, acting Director of the Federal Housing Finance Agency, announced today that the policy of gradually raising the guaranty fees Fannie Mae and Freddie Mac charge mortgage lenders, would continue.  Since guaranty fees must be passed on to borrowers, this policy is at cross purposes with Fed policy of  keeping mortgage rates low by purchasing agency mortgage-backed securities. Raising guaranty fees is an anti-recovery policy.

If there was a coherent plan in place that aimed at encouraging the private sector to gradually replace the agencies, raising the guaranty fee might make sense from a long-run perspective as a way to push a privatization process along, despite its short-run dampening effect on the recovery. But there is no such coherent plan out there -- except perhaps to punish the largest players in the industry for their misdeeds during the period leading up to the financial crisis. Fannie and Freddie will be with us indefinitely because there is nothing emerging to replace them.

The tragedy in this is that a thoroughly tested private model is available, and would not require much from Government to get launched. The problem is that the model has no political constituency. I have discussed this in the 3 articles listed below.

What Will Happen to Fannie Mae and Freddie Mac (First of 3)

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