Fannie/Freddie Yank Their 1/2 Point Refi Fee
On Saturday night my wife Heejin and I had a wonderful date at an outdoor Italian restaurant.
The food and weather were perfect, and the ambiance was even better with overhead string lights, friendly passersby, and a saxophone player in the background.
The only problem was that there were too few customers, and we would not stand for it!
So, we called our local politicians and demanded that they keep the entire Italian restaurant industry afloat.
The Fed is now going to make sure all Italian restaurants can buy pasta for a penny per ton – no matter what the actual cost is. The Fed is also going to buy millions of Veal Parmesan and Spaghetti dinners every night to make sure the price stays high enough for every restaurant to make money no matter what. The government is also going to set up two giant government-sponsored entities (Fanzio and Fredo) that will keep on buying Italian dinners en masse even when the Fed stops.
Some politicians were nervous about the huge subsidies; they were rightfully afraid that the Italian restaurant industry would over-expand in response to the subsidies and end up leaving the taxpayers on the hook for millions of potentially worthless Italian dinners…
OK… the “date” is a true story, but the part about the government propping up the Italian restaurant industry might not be true. 😊
But, it is totally analogous to how the government props up the mortgage industry by suppressing interest rates, buying up mortgage-backed securities and/or buying mortgages from mortgage banks en masse like Fannie and Freddie do.
We are probably the most subsidized industry in history.
That is why it was amusing (at least to me) to see the mortgage industry so up in arms about the extra 1/2 point fee Fannie and Freddie recently slapped on all refinance loans.
Industry insiders were irate b/c the fee came out of nowhere and raised costs for all refinance borrowers at “the worst possible time.”
Many industry outsiders though were shocked by the complaints, wondering aloud how any industry so insanely subsidized could ever complain about anything.
Why not subsidize failing auto parts stores, bicycle manufacturers, roofing companies, plumbers, or even restaurants?
Yes, the mortgage and real estate industries are vital to our economy, but so are many other industries.
And, to outsiders, it seems somewhat arbitrary to prop up the mortgage industry so much.
During good times, the risk from propping up the mortgage industry seems minimal, but during bad times that risk can increase markedly like we saw in 2008.
Anyway, this is where I am going with all of this: The pressure from the industry-insiders worked.
The FHFA (the entity that regulates Fannie and Freddie) announced yesterday that it is postponing the new 1/2 point fee until December.
This of course directly benefits JVM, but I nonetheless remain concerned about the level of subsidies our industry enjoys.
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