Fannie Mae and Freddie Mac, the U.S.-owned mortgage-finance companies, will raise the fees they charge lenders to guarantee loans as part of an effort to shrink their presence in the mortgage market, the Federal Housing Finance Agency said.
For the first time, the companies also will start charging higher fees in New York, New Jersey, Connecticut and Florida, where long foreclosure timelines make it more expensive for Fannie Mae and Freddie Mac to dispose of properties they take over after borrowers default, the FHFA said yesterday. The agency is also shifting its fee structure so borrowers with poor credit will pay more.
The fee increases, typically passed on to borrowers in the form of higher interest rates, will go into effect in March and April, the agency said in a statement. Fees will rise an average of 14 basis points on typical 30-year fixed-rate mortgages, the FHFA said.
“Today’s price changes improve the relationship between g-fees and risk,” FHFA Acting Director Edward J. DeMarco said in a statement, referring to fees for the guarantees. “The new pricing continues the gradual progression toward more market-based prices, closer to the pricing one might expect to see if mortgage credit risk was borne solely by private capital.”
Fannie Mae and Freddie Mac purchase loans and package them into securities, guaranteeing payments of principal and interest. They currently back about 60 percent of U.S. home mortgages.
The move to shrink the companies’ footprint by raising prices comes as DeMarco is in his last days heading the agency after spending four years pursuing a program of gradually reducing the companies’ operations and maximizing their returns to taxpayers.
The U.S. Senate plans to vote tomorrow to confirm DeMarco’s successor, Mel Watt, a Democratic congressman from North Carolina. Watt, who has declined to discuss his views on housing policy while his nomination is pending, would have the power to reverse the increases if he disagrees with them.
The FHFA is eliminating a 25 basis-point up-front fee Fannie Mae and Freddie Mac began charging in 2008 to deal with the costs of the adverse housing market, recognizing that the market has improved. The fee will remain in the four high-cost states.
FHFA’s last guarantee-fee increase, of 10 basis points, came in November of 2012. An increase of 10 basis points would cost a borrower with a $200,000 mortgage about $4,000 over a 30-year loan term. The average guarantee fee charged by the two companies rose to 38 basis points in 2012 from 28 basis points in 2011, according to a report FHFA also released yesterday.
Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac have taken almost $187.5 billion in U.S. aid since they were placed under conservatorship in September 2008 after losses on investments in risky loans pushed them to the brink of insolvency. With the rebound in the housing market, the companies have become profitable and will have returned $185.2 billion to taxpayers by the end of 2013.