Every segment of the U.S. housing industry--builders, buyers and salesmen--will be badly hurt if White House budget planners are successful in placing new fees on government-sponsored housing agencies, the head of the Federal National Mortgage Assn. (Fannie Mae) charged in an interview.
Fannie Mae Chief Executive David O. Maxwell said the proposed fees would boost mortgage rates and slash housing construction and sales across the country. Low- and middle-income home buyers, who depend heavily on the agencies for affordable home loans, would be most affected by the proposed new fees, he said.
Imposition of the fee could also cost Fannie Mae up to $1 billion over the next five years, he said, adding: "At some point, we'd have to hand the keys over to the secretary of the Treasury and say: 'Here, you figure this out.' "
The proposed fees are reportedly one small part of the White House budget package to be submitted to Congress this week in the first step of what is expected to be a Pier 6 brawl on how to achieve the huge budget cuts mandated by the Gramm-Rudman law. The recently enacted law mandates that the federal government's budget be balanced by 1991.
Fannie Mae officials are taking the lead in trying to discredit the fees even before the White House has officially proposed them. Edwin L. Dale Jr., a spokesman for the Administration's budget director, James C. Miller III, said he could not comment on specifics until the budget is presented to Congress on Wednesday.
In a speech to home builders in Dallas last month, Maxwell called White House budget officials "these elitists" who are "cold-bloodedly determined to drive the American home buyer into ruinous competition for mortgage money with Wall Street merger maniacs and the tentacled, multinational octopi of the world. They will succeed--if we don't have the courage and determination to stop them."
"Mr. Maxwell," Dale replied, "is using highly colorful language to describe an extremely modest proposal."
Housing agencies believed to be affected by varied levies in the proposal would be Fannie Mae, the Federal Housing Administration, the Federal Home Loan Mortgage Corp. and the housing operations of the Veterans Administration. These agencies are usually able to provide cheaper mortgage money to consumers because their U.S. government backing allows them to borrow money more cheaply than private companies.
Fannie Mae is a privately owned and operated company established by Congress to provide liquidity to the U.S. mortgage market. Though largely unknown to the general public, Fannie Mae carries tremendous clout because it provides a huge secondary market for moderately priced home loans.
Fannie Mae now has a loan portfolio of almost $100 billion--nearly four times the asset size of the nation's largest savings and loan. The portfolio consists largely of mortgages acquired from financial institutions that sell the loans to Fannie Mae in order to get cash for new mortgages.
Phased In Over Five Years
Maxwell admitted that he does not believe the user fees will survive congressional scrutiny, pointing to a similar--and far more modest--proposed fee that died in Congress last year. But, he said, he is campaigning hard against the measure because he wants to leave nothing to chance.
The Fannie Mae fee--as Maxwell says it was outlined to him by White House budget officials--would be phased in gradually over five years and would ultimately cost the company half a percentage point on the money that it borrows. It would also include a charge of one-tenth of a percentage point on the mortgage securities that Fannie Mae packages and sells to investors.
That fee alone would cause noticeable ripples in the housing market, Fannie Mae officials claim, citing statistics in a study by Chase Econometrics, a well-known forecasting firm. Fannie Mae commissioned the study.
When fully implemented, the Fannie Mae fee would raise mortgage rates by half a percentage point and cut home sales by 100,000 units a year, the study said. It would also cut new-home construction, which pumps billions of tax dollars into government coffers each year, by almost 3% from present levels.
"Once the consequences of these fees are examined," Fannie Mae economist Timothy Howard said, "I think Congress will realize they won't raise money because they'll hurt the housing market."
Others aren't so sure.
"I've seen those Chase numbers, and they are very hard to support," said Michael Sumichrast, chief economist for the National Assn. of Home Builders. "Mortgage rates may go up a little in the short run, but over the long run, it's not going to make much difference."