Back in January, the Federal Housing Finance Agency (FHFA) announced that mortgage fees for some borrowers would increase beginning May 1, while other borrowers would see their fees decrease.
The FHFA is an independent federal agency that “was established by the Housing and Economic Recovery Act of 2008 (HERA) and is responsible for the effective supervision, regulation, and housing mission oversight of the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Home Loan Bank System, which includes the 11 Federal Home Loan Banks (FHLBanks) and the Office of Finance (OF).”
The agency’s mission is to ensure that Fannie Mae and Freddie Mac — which buy about two-thirds of the mortgages originated by U.S. lenders — and the FHLBanks “fulfill their mission by operating in a safe and sound manner to serve as a reliable source of liquidity and funding for housing finance and community investment.” These three entities together “provide more than $8.1 trillion in funding for the U.S. mortgage markets and financial institutions.”
As the May 1 date approached, Republicans began complaining that the mortgage fee hike would force homebuyers with good credit to pay more for their mortgages to offset lower fees charged to those with riskier credit.
Two House Republican leaders even wrote a letter to FHFA director Sandra Thompson demanding that the Biden administration eliminate the fee hikes or else Republicans would “take action to repeal them legislatively and reconsider the parameters of FHFA’s authority.”
In the Senate, Roger Marshall (R-Kan.) penned a letter as well. He termed the new fee structure a “shortsighted and counterproductive policy” that “demonstrates a profound misunderstanding of the necessity of accurately tailoring housing finance products to credit risk and establishes a perverse incentive that punishes hardworking Americans for their fiscal prudence.”
The fees in question are loan-level price adjustments (LLPAs) — risk-based fees assessed to mortgage borrowers depending on their credit score, loan-to-value, debt-to-income, loan purpose, occupancy, down payment, and mortgage type.
But according to FHFA director Thompson, “Higher-credit-score borrowers are not being charged more so that lower-credit-score borrowers can pay less. The updated fees, as was true of the prior fees, generally increase as credit scores decrease for any given level of down payment.”
However, what she did not acknowledge is that some borrowers with the same credit score who put less than 5 percent down will pay lower LLPAs this year, while borrowers who put 20 percent down will pay higher LLPAs this year. This is why Thompson also said that the fee changes will “increase pricing support for purchase borrowers limited by income or by wealth.”
Republicans miss the point on the mortgage fee hike, just like they miss the point on almost everything else.
It doesn’t matter if the FHFA raises mortgage fees on all borrowers, some borrowers, no borrowers, high-risk borrowers, low-risk borrowers, borrowers who make large down payments, or borrowers who make small down payments.
The FHFA should not exist in the first place, and that is the point that Republicans ought to be making.
The FHFA was created in 2008 to replace the Federal Housing Finance Board (FHFB) and the Office of Federal Housing Enterprise Oversight (OFHEO) — other agencies that should never have been created. It then placed Fannie Mae and Freddie Mac — more agencies that should not exist — in conservatorship. The FHFA oversees the Federal Home Loan Banks — government-sponsored banks that should not exist. None of these agencies should be confused with the Federal Housing Administration (FHA) within the Department of Housing and Urban Development — an agency and a department that should not exist — which insures mortgages made by private lenders.
What Republicans ought to be pointing out is that the Constitution (Republicans claim to be the party of the Constitution) nowhere authorizes the federal government to have anything to do with housing. This means no FHFA, no FHA, no Fannie Mae, no Freddie Mac, no Ginnie Mae, no HUD, no Federal Home Loan Banks, and no VA and USDA mortgages.
These agencies are all relics of the New Deal’s Federal Home Loan Bank Act (1932) and National Housing Act (1934).
It is not the job of the government to make housing affordable, issue mortgages, insure mortgages, facilitate access to affordable mortgage credit, or oversee the housing industry.
Back in September of 2019, the Fifth Circuit Court of Appeals, in an en banc opinion, ruled that the structure of the FHFA was unconstitutional under the separation of powers doctrine because its director could not be removed by the president. This ruling was later affirmed by the U.S. Supreme Court in Collins v. Yellen (2021).
But it is the constitutionality of the FHFA itself that the federal courts should have been deciding, not merely its structure. From the beginning, Republicans should have challenged its existence — instead of helping to create it — and not just complain when the agency does something they don’t like.