The accounting problems of Fannie Mae have focused attention on the two ways they make their profits. A substantial part of their earnings comes from buying and holding mortgages and mortgage-backed securities (MBS), but they also earn substantial amounts by charging fees for guaranteeing that investors will receive full payment on their MBS. Many observers have noted that Fannie and Freddie's guaranty fees (G-fees) are far higher than their actual losses, and recent commentary suggests that these fees add significant costs to what a homeowner might pay on a mortgage—raising questions about whether Fannie and Freddie are really reducing the costs of home ownership.
The Office of Federal Housing Enterprise Oversight (OFHEO), the regulator of Fannie and Freddie, has begun an investigation into how G-fees are priced, and why—if the two companies are competing—G-fee rates remain so high. This conference will consider the question of whether G-fees are properly priced or whether institutional barriers are keeping them unnecessarily high.
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