FHFA Sounds Private-Sector Mantra With Plans to Raise GSEs’ Fees

""Fannie Mae"":http://www.fanniemae.com and ""Freddie Mac"":http://www.freddiemac.com will begin raising the fees they charge lenders for guarantees on mortgage loans next year.

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According to the two companies' regulator, it's a step toward readying the market for private-sector reinforcements and weaning the nation's housing sector off of low-cost government support.

Speaking at a mortgage conference in Raleigh, North Carolina Monday, Edward DeMarco, acting director of the ""Federal Housing Finance Agency"":http://www.fhfa.gov (FHFA), said higher guarantee fees from the GSEs ""should be expected in 2012.""

""[I]t is my view that a series of periodic, gradual price increases makes more sense than one or two larger price adjustments,"" DeMarco said.

While Fannie and Freddie have been gradually increasing their credit guarantee fees since their conservatorship began, DeMarco says their current pricing is still less than we'd see in a purely private, competitive market â€" the model he suggests will ultimately take shape as the housing finance system is reformed.

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DeMarco stressed that his agency has a statutory responsibility to put Fannie and Freddie ""in a sound and solvent condition"" while ensuring their operations support a competitive and liquid mortgage market.

FHFA is not permitting the GSEs to offer new products or enter new lines of business. Instead, their operations remain focused on their core business activities and loss mitigation, according to DeMarco.

""This type of limitation on new business activities is consistent with the standard regulatory approach for addressing companies that are financially troubled,"" he said. ""And it is even more pertinent for the Enterprises given their uncertain future and reliance on taxpayer funds.""

DeMarco described Fannie and Freddie's conservatorship as a ""time out"" to allow policymakers to devise a new structure for the nation's housing finance system.

""It ought to be clear to everyone at this point, given the Enterprises' losses since being placed into conservatorship and the terms of the Treasury's financial support agreements, that the Enterprises will not be able to earn their way back to a condition that allows them to emerge from conservatorship,"" he said. ""In any event, the model on which they were built is broken beyond repair.""

While DeMarco acknowledges that reforming the housing finance model is a difficult task, he says the general expectation is that more progress should have been made by now.

Lawmakers and the administration continue to debate what the future of the nation's housing finance system will look like, but in the meantime, DeMarco says Fannie and Freddie will move ahead with raising their guarantee fees next year in order ""to better reflect that which would be anticipated in a private, competitive market.""