Two major wholesale lenders are up in arms over fees on loans sold to government-sponsored enterprises (GSEs) stemming from a recession-era notion that such loans are riskier.
Lenders, Attachment point and United Wholesale Mortgagesay Fannie Mae and Freddie Mac began applying additional fees for third-party or wholesale loans in mid-2021. The amount paid by wholesale lenders has now reached at least $279 million, according to analysis provided by Homepoint, at a time when rising mortgage rates are already cutting lenders’ profits.
“The original pretext for having a differential on the capital charge is no longer applicable,” said Willie Newman, CEO of Homepoint. “A segment of the business is treated differently.”
A United Wholesale Mortgage The spokesperson said the additional supplement was part of an “old school 2007/2008 viewpoint that has become obsolete”.
The load is not specifically dictated by the Federal Housing Finance Agency, but the agency’s attitude to third-party lending from a capital risk perspective provides the rationale. An FHFA spokesperson said GSEs have the discretion to set their own prices, as long as they follow FHFA’s minimum price guidelines.
The FHFA declined to say whether it views wholesale lending as inherently riskier or to provide data to support that position.
Fannie Mae said it is pricing the loans to comply with FHFA’s corporate regulatory capital framework, the rule that governs GSE capital standards. The rule sets a risk multiplier of 1.1 for wholesale lending which is higher than lending from other channels. Single family loans cannot have a total risk multiplier – a composite of many risk factors – greater than 3.
A Fannie Mae spokesperson said GSEs are charged higher capital fees for wholesale lending.
“In order to stay compliant with required return on capital thresholds, Fannie Mae adjusts pricing based on the mix of collateral it receives, with TPO being one of the features it sets the price for,” a doorman said. -word.
Homepoint said both GSEs charge the additional fee. But a spokesperson for Freddie Mac, which is governed by the same rule, said they were not assessing a 15 basis point surcharge on wholesale lending. Freddie Mac declined to provide justification for their wholesale market pricing compared to other origination channels, and did not respond to questions about how they pass on the rule’s 1.1 risk multiplier. capital for wholesale lending.
Wholesale lenders argue that data on wholesale loan defaults and loan quality dispel the idea that wholesale loans are riskier. This was not the case before the Great Recession, when mortgage brokers were blamed for many of the riskiest underwriting practices in the market.
Default rates for wholesale non-bank and bank loans issued between 2005 and 2008 were 14.9% and 16.3%, according to a Homepoint analysis. Defaults on loans that were not initiated by third parties have never exceeded 13%.
An analysis of defaults over the past few years provided by Homepoint, which the company has used to explain the problem to its own mortgage brokers, shows that default rates for loans issued between 2018 and 2019 have hovered around 0.2% for all channels.
“Specifically, data on delinquency and loan quality through the wholesale channel confirms that broker lending is not only equal to retail lending, but in many cases better,” a spokesperson for the agency said. ‘UWM.
One differentiator Homepoint and UWM have drawn attention to is the performance of the wholesale channel with minority borrowers. They hope this will provide a rationale for revising the capital rule, especially given the FHFA’s emphasis on advancing equity in mortgage financing.
The top 10 wholesale lenders have fewer 30-year-compliant conventional borrowers than the top 10 non-bank retail lenders, making just 725,000 loans compared to 1.12 million for non-bank retailers. But more than 25% of those borrowers are minorities, compared to just 16% for retailers.
Thus, Homepoint and UWM argue that the surcharge not only impacts their bottom line – which it most certainly does – but also penalizes the borrowers that the GSEs must serve. If the FHFA wants to increase equity in the mortgage market, it makes no sense to penalize the wholesale channel, UWM and Homepoint argue.
“The most concerning part of this surcharge is its impact on affordable purchase loans, where wholesale brokers and lenders do significant business,” a UWM spokesperson said. “We expect the FHFA and all parts of the industry to treat wholesale and retail lending alike in the near future.”