Fannie Mae and Freddie Mac may be facing insolvency if they are not able to recoup some of the costs associated with their COVID-19 mortgage relief programs, Federal Housing Finance Agency Director Mark Calabria told House lawmakers today. The GSEs are attempting to recover some of those costs through an “adverse market fee” of 50 basis points that would apply to certain refinance transactions. The fee was originally set to take effect in early September but was delayed after advocacy by ABA and other industry stakeholders until Dec. 1.
“The CARES Act imposed unfunded mandates on Fannie and Freddie as well as much of the mortgage market. We are required by statute to recoup those fees via income,” Calabria said in testimony before the House Financial Services Committee. The GSEs currently have a net worth of around $30 billion—of which $15 billion is due to accrued interest on mortgages in forbearance. “That’s money they haven’t received—they can’t absorb those losses,” Calabria explained. “Were Fannie and Freddie to take the entire potential $15 billion loss from COVID, they would hit zero. And if they become insolvent, there’s a real risk that would disrupt the mortgage market.”
When asked to ballpark how much financial support the GSEs would require from Congress to cover their costs for COVID-19 relief without having to impose the adverse market fee, Calabria estimated that it “would have to be in the neighborhood of $10 billion,” though he emphasized that “I’m not requesting any funding—we think we can make it work on our own.”
ABA continues to urge FHFA to carefully assess the effect the fee would have on struggling homeowners and the broader economy, and to engage in more direct communication with the industry and consumer groups about how to recover costs related to the pandemic, especially before imposing unexpected fees.