Fannie, Freddie to Hike Loan Fees
FHFA Acting Director Edward J. DeMarco sought the fee increase to boost fiscal stability at the government-sponsored enterprises and shrink their footprint in the mortgage market, where they own or guarantee about 60 percent of U.S. home loans.
"These changes will move Fannie Mae and Freddie Mac pricing closer to the level one might expect to see if mortgage credit risk was borne solely by private capital," DeMarco said in the statement released yesterday.
The guarantee-fee increases, which begin taking effect in November, probably will be passed on to borrowers in the form of higher interest rates and are small enough that they won't stall mortgage lending, banking-industry trade groups said.
An increase of 10 basis points would cost a borrower with a $200,000 mortgage about $4,000 over a 30-year loan term.
FHFA, which has overseen Fannie Mae and Freddie Mac since they were seized by regulators in 2008, has been planning since last year to raise fees charged for guaranteeing principal and interest, a system designed to boost lending and homeownership.
Local Cost The agency said it also will seek public input on a plan to charge different guarantee fees in each state based on the local cost to the GSEs of carrying foreclosures.
"The 10-basis point increase is an incremental step toward implementing risk-based pricing," Isaac Boltansky, a Washington-based policy analyst at Compass Point Research & Trading LLC, said in a phone interview.
"The real issue that observers have to keep in mind is that there'll be a whole new approach going out from FHFA based on state-level information." The lack of private capital in the housing market isn't driven only by competition from Fannie Mae and Freddie Mac but also by uncertainty about prices and other concerns, David Stevens, president of the Mortgage Bankers Association, said in a telephone interview.
He said, regulators should ensure they don't raise the fees too high.
'Excessive Increases' "Excessive increases may disproportionately affect the housing recovery without creating any new entree of private capital," Stevens said.
The fee increase will begin Nov. 1 for loans sold for cash and Dec. 1 for loans exchanged for mortgage-backed securities, FHFA said.
The last guarantee-fee increase took effect in April after Congress boosted them by 10 basis points to fund a payroll tax cut.
The average guarantee fee charged by the two companies rose to 28 basis points in 2011 from 26 basis points in 2010, according to a report FHFA also released yesterday.
By the end of the year, after both increases are in effect, fees could average about 48 basis points.
Source: Business Weekly
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