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 Fannie Mae <FNMA.OB> and Freddie Mac <FMCC.OB>, the two
taxpayer-owned mortgage finance companies, will increase their
guarantee fees in 2014 as part of an effort to reduce their presence
in the mortgage market.
The Federal Housing Finance Agency announced the policy last week,
and Fannie Mae and Freddie Mac laid out the specifics of how the new
fees would work late on Monday. The move comes as FHFA acting
Director Edward DeMarco finishes out his last days heading the
agency.
Democratic Congressman Mel Watt of North Carolina was recently
confirmed to head the FHFA, and he will have the authority to
reverse the fee increases if he opposes them.
The hikes represent a 10 basis point across-the-board bump, the
repeal of a 25 basis point upfront adverse market surcharge in every
state but New York, New Jersey, Connecticut and Florida, plus a
revamping of the risk-based fee structure that will mean borrowers
with poor credit pay more. A basis point is one-hundredth of a
percentage point.
Such fees are typically passed along to borrowers, resulting in
higher mortgage rates. The FHFA said the combined impact is raising
the average guarantee fee on a 30-year, fixed-rate mortgage by 14
basis points.
"Lenders appear worried that rates for these borrowers could jump as
much as 40 basis points," Jaret Seiberg, a senior policy analyst at
Guggenheim Securities, said in a research note.
FICO, owner of the credit-scoring formula often used by U.S.
lenders, helps decisions such as applications for interest rates on
home loans, which range from 300 to a top of 850.
The changes do not go into effect until March.
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Fannie and Freddie said that many borrowers without a down payment
of at least 20 percent and who have credit scores that range from
680 to 760 will wind up paying more.
"It is important to remember that this is the fee a borrower would
have to pay to get the best rate. Lenders typically roll this fee
into the cost of the loan, which drives up the rate the borrower
pays," said Seiberg.
Fannie Mae and Freddie Mac purchase mortgages from lenders, which
they either keep on their books or bundle into securities that they
offer to investors with a guarantee. They do not make loans, but
provide liquidity to the mortgage market by taking mortgages off the
books of lenders, freeing them to make more loans.
The companies currently back more than half of all U.S. home
mortgages and are sweeping their profits from the housing recovery
to the U.S. Treasury. Taxpayers have propped up Fannie and Freddie
to the tune of $187.5 billion in bailout funds since they were
seized by the government in 2008, but they have paid $185.2 billion
to the Treasury in dividends for that support.
(Reporting by Margaret Chadbourn;
editing by Leslie Adler)
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