by Calculated Risk on 9/08/2008 09:24:00 AM

Floyd Norris wonders in the NY Times which master the new Fannie and Freddie will serve: The Dilemma of Fannie and Freddie

In recent months, Fannie and Freddie raised the fees they charged to purchase or guarantee loans. ... Now the new managers of Fannie and Freddie will have to decide how they want to run enterprises controlled by the government.

Lowering fees and buying large numbers of mortgages would serve as an economic stimulus, but could increase the ultimate cost to the government if the housing market gets worse. Raising fees, and being cautious in lending, could prolong the housing slump. Being generous in restructuring loans could help borrowers, but cost the enterprises money.

Henry M. Paulson Jr. ... tried to assure the public that the enterprises would follow both courses, an indication that the need to serve multiple masters remains. On one side, he promised that “the primary mission of these enterprises now will be to proactively work to increase the availability of mortgage finance, including by examining the guaranty fee structure with an eye toward mortgage affordability.”

On the other side, he said Fannie and Freddie “will no longer be managed with a strategy to maximize common shareholder returns, a strategy which historically encouraged risk-taking.”

It may not be easy to take less risk while lending more and charging lower fees.

For a discussion of how GSE MBS works (and g-fees) see Tanta's MBS for UberNerds I: GSE Pass-Throughs