As the Federal Housing Finance Agency mulls over a proposed increase in fees charged by the GSEs to provide guarantees on mortgage-backed securities, a new report from the Urban Institute suggests the agency faces a difficult task. The team at UI determined there are three crucial assumptions the agency must make when calculating an appropriate number for g-fees: whether or not to count future g-fee premiums as capital, what return on equity to assume, and what kind of capital buffer GSEs need beyond what is required to cover expected losses in a stress scenario.
The UI commentary comes as the window closes for industry participants and analysts to comment on a proposed hike in g-fees originally announced last year by former Acting FHFA Director Edward DeMarco. Upon taking over his post in January, Director Mel Watt announced the agency would suspend any increases until he could determine how the market would be impacted. Having been reintroduced in June, the issue is open for public input until September 8.
Investors led by New York-based hedge fund giant Pershing Square Capital Management sued the United States government, alleging that common stockholders in Fannie Mae and Freddie Mac have been shortchanged since the government began sweeping profits from the GSEs into the U.S. Department of Treasury starting in 2012. Pershing Square claims in the lawsuit that the diversion of GSE profits created a "windfall" for the government while cheating GSE shareholders out of their share of the profits.