| NEW YORK, March 5
NEW YORK, March 5 Freddie Mac's elimination of
significant fees to boost refinancings under President Barack
Obama's housing plan may force major recalibrations in the $5
trillion mortgage bond market unless rival Fannie Mae follows
suit, lenders and investors said.
Freddie Mac FRE.P on Wednesday followed the announcement
of the Obama housing plan details by dropping fees that
compensate for risks of low credit scores and little equity. By
cutting fees, the government-controlled company can sharply
increase the number of loans eligible under the Obama
administration's refinancing initiative, analysts said.
But the larger Fannie Mae FNM.P surprised investors by
opting against a similar move despite urging by major lenders
who also advised Freddie Mac, an industry source said. Fannie
now risks angering its lender partners whose customers would be
left paying higher fees.
"I suspect Fannie Mae is moving very quickly to change
their minds on this," said Garry Cipponeri, a senior vice
president at Chase Home Finance in Iselin, New Jersey. Failure
to follow Freddie Mac would be a public relations "disaster,"
In an e-mail, Brian Faith, a Fannie Mae spokesman, declined
Under government control since September, the two largest
U.S. mortgage finance companies have been taking further steps
to underpin the market with a nod toward U.S. policy against
shareholder profit. But the different approaches on fees may
suggest the rivalry between the two companies is still alive.
Freddie Mac cut the fees to "align" itself with the Obama
program, which aims to help as many as five million borrowers
lower loan rates, a Freddie spokesman said. The program will
begin on April 1, and will help borrowers that have been unable
to refinance because their home values have dropped.
Freddie Mac "delivery" fees eliminated for the program run
as high as 2.75 percentage points to borrowers with high
loan-to-value ratios and low credit scores.
To illustrate the disparity, a Fannie Mae-funded borrower
with a 620 FICO score and 105 percent loan-to-value, combining
first- and second-liens, would be charged 5.25 percentage
points, he said. The same loan funded by Freddie Mac would face
a 0.25 percent fee.
For loans supporting 6.5 percent MBS originated in 2006 and
2007, Freddie Mac's move could be boost refinancing incentives
0.5 to 0.7 percentage point, according to Barclays Capital.
Bonds issued by Freddie Mac, which would be hurt the most
if refinancing quickened, underperformed on Wednesday. But the
move was muted on Thursday amid expectations that Fannie Mae
will remove its fees, market analysts said.
Lenders that sell most of their loans into Fannie Mae's MBS
program will "scream loudly," said Chase's Cipponeri.
Steve Kuhn, partner and head of fixed-income trading at
Pine River Capital Management in New York, said: "So far, there
has been very little relative price movement which suggests
most participants believe that ultimately there will be
uniformity in the fees charged."
Investors have been placing bets that federal initiatives
to spur refinancings, such as Federal Reserve purchases of MBS,
would fall short of goals because of credit constraints. If
refinancings soar, MBS paying high interest rates are more
exposed to losses because principal prepayments occur at 100,
or par, on bonds currently priced at 103-1/2 to 104-1/2.
If the prepayments are slower than expected, those bonds
should rise in value.
(Editing by Gary Crosse)