“In 2012, Fannie Mae and Freddie Mac (the Enterprises) generated $12.5 billion in revenues from the single-family guarantee fees that they charge to protect investors in their mortgage-backed securities (MBS) against potential credit losses. The Federal Housing Finance Agency (FHFA or the Agency) has argued that federal financial support for the Enterprises over the years has permitted them to set their guarantee fees at artificially low levels, thereby increasing their risks and pricing potential competitors out of the market. As the Enterprises’ conservator, FHFA has directed them to increase guarantee fees as a means to encourage greater private sector investment in mortgage credit risk, reduce their dominant position in housing finance, and limit potential taxpayer losses. The Federal Housing Administration (FHA), an agency of the Department of Housing and Urban Development (HUD), insures mortgages originated by approved lenders against credit losses. FHA has raised its insurance premiums in recent years to, among other things, increase private sector investment in mortgage credit risk. In this respect, FHA’s initiative is aligned in concept with that of FHFA. However, in the spring of 2013, HUD announced that FHA was discontinuing further premium increases. We conducted this evaluation to (1) analyze FHFA’s initiative, and (2) assess FHFA’s communication and interactions with FHA on their pricing initiatives.”
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