JPMorgan Chase (JPM) and Wells Fargo (WFC) are retaining more high-quality, conforming mortgages that they would normally sell to Fannie Mae or Freddie Mac, raising concerns that the banks are adversely selecting the weakest loans for the government-sponsored enterprises.

The banks are in talks with Fannie to determine if guarantee fees need to be raised to cover the higher risk to the GSE of holding more loans with less-than-stellar credit characteristics. The banks contend they are still delivering loans of high quality to Fannie. The GSEs routinely evaluate the mix of loans being delivered to them and hold banks accountable if that mix deviates significantly from the past.

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