Fannie Mae-No Politics (FNMA)

[Cubshawk]

Ignorance displayed as arrogance.

If you were paying attention you'd realize we were talking about the government guaranteeing the mortgage market as a whole - not individual loans. The fee on each policy is just a mechanism to fund the overall backstop by the federal government - not pay for individual loan guarantees.

contrarian bull
Instead of FnF covering the cost - why not just have a small fee on each individual mortgage based on loan value at time of origination?

Have you ever heard of companies called Fannie and Freddie?

But in case you never heard of them... This is precisely what F&F do. When you take out a mortgage that they back - you are charged a one-time "up front mortgage insurance premium (UFMIP) which is set as a percentage of the mortgage amount. This goes to F&F as an initial premium to back the loan. Then monthly you pay a premium that varies depending on factors like LTV. Those two fees are a primary source of income for F&F and thus "back" the risk they take on for the mortgage possibly defaulting. Once you have enough equity in the loan you can file to have that monthly premium removed from your loan payments. (Lots of people forget to do this and that is additional profit for F&F)

Since 2008 those fees have been increased quite a bit - approximately twice what they used to be. When loan losses drop back to historic levels this would indicate F&F profits should be 2 to 10 times what they were before 2007.

That is - assuming they are allowed to keep that lucrative business and keep premiums where they are. If their profits are too high - and the feds quit stealing them - there will be a call to reduce those premiums.