The Cost of Equity

As noted yesterday, FHFA followed through on its heavy hints in the 2022 GSE scorecards, mandating significant hikes in upfront fees on most high-balance mortgages and those for second homes.  There is little question in our mind that these price hikes will restore portfolio-based origination channels for these loans and, to a lesser degree, also give PLS a boost.  How much of the market transfers out of the GSEs will determine the extent to which remaining high-balance and second-home fee business cross-subsidizes lower-fee products aimed at more affordable, lower-income market segments.  If, as FHFA seems to expect, business migrates and GSE capitalization improves, then cross-subsidization might be minimal.