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Chrisman's Corner: Will Fannie Mae & Freddie Mac's Profits Help Borrowers?

Instead of being the lightning rod for the mortgage problems and the credit crisis, Fannie Mae and Freddie Mac appear to have turned things around. Last week Fannie Mae said that it would soon send the US Treasury $7.2 billion, a profit-related dividend that makes taxpayers whole for the 2008 bailout. (Fannie made $84 billion for the year.) But does it mean anything for JMAC’s brokers and their borrowers, like lower rates or fees, or looser underwriting guidelines?

First, unlike other companies rescued by taxpayers during the financial crisis, however, the firms will remain under government for the foreseeable future. Freddie & Fannie’s earnings are expected to remain strong, but 2014’s will be lower than 2013’s.Both Fannie Mae and Freddie Mac last year benefited from a recovering market that lifted home prices, decreased loan defaults (and thus credit losses) and fewer delinquencies, and from recoveries on counterparty settlement agreements with a number of financial institutions. Their return to profitability also allowed them to reverse write-downs of certain tax-related assets, which led to large one-time windfalls.

That is all well and good. But Freddie and Fannie are still under the U.S. Government, and it is quite a powerful boss. It is highly unlikely that the two companies will loosen guidelines. In fact, JMAC, and much of the industry, is working under the QM (Qualified Mortgage) and ATR (Ability to Repay) guidelines which limit any company from markedly changing their guidelines.

There may, however, be some movement in fees charged by Fannie & Freddie. Volumes have declined for practically everyone in the industry and with lower volumes comes the possibility of reducing prices in order to gain some back (just as would happen in most free-market economies). In fact, a fee increase scheduled to go into effect recently was eliminated. JMAC will be watching this closely in order to pass along beneficial price changes to its brokers.