Lenders Chafe at Service Fee

Such is the power of Fannie Mae(FNM Quote - Cramer on FNM - Stock Picks) and Freddie Mac(FRE Quote - Cramer on FRE - Stock Picks) in the mortgage market that the two government-formed titans are able to impose a pair of esoteric fees on lenders that end up being paid by nearly everyone who buys a house.

Neither fee is well-known. One covers the cost of having Freddie or Fannie guarantee a loan from default, something they do for the vast majority of mortgages written in the U.S. The other goes to the bank "servicing" one of those mortgages, a process that entails collecting monthly interest payments, assessing late fees and paying taxes and insurance premiums.

Now, a group led by Countrywide Financial(CFC Quote - Cramer on CFC - Stock Picks) is pushing Fannie and Freddie to cut the current servicing fee in half, a step that could reduce costs for homebuyers. The campaign has opened a deep rift among mortgage lenders and spooked small ones, who fear they will become vulnerable to takeover if their larger brethren are freed from the servicing-fee burden.

The servicing fee currently adds 0.25 of a percentage point to a loan's interest rate, a standard that has held steady for more than a decade.

For mortgage banks that specialize in servicing, the levy can generate a lot of income. So it might seem odd that some mortgage lenders are behind the push.

Nevertheless, the drive to reduce the fee does make sense to a company like Countrywide in light of various intricacies of mortgage servicing, a capital-intensive business that entails a good deal of risk. While loan servicing is a potentially lucrative enterprise, it can be particularly difficult to manage since it is affected by both the direction of interest rates and the behavior of homeowners.

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