New FHFA Director Will Delay Fannie Mae, Freddie Mac Fee Increases

The incoming director of FHFA said he plans to delay the increase in mortgage fees charged by the housing-finance giants that the agency announced this month.

U.S. Representative Mel Watt is scheduled to be sworn in as director of the Federal Housing Finance Agency on January 6th.

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FHFA’s earlier announcement of fee increase

Earlier this month, FHFA which is regulating the Fannie / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie / Federal Home Loan Mortgage Corp (OTCBB:FMCC), announced that they would increase the mortgage fees charged by the GSEs to guarantee home loans to make their services less competitive and decrease their presence in the secondary mortgage market.

FHFA indicated they will first raise rates in New York, New Jersey, Connectivity and Florida because their costs are also higher in those states, but more fee hikes can be expected down the line. FHFA’s acting director Edward J. DeMarco said: “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”.

DeMarco said Fannie / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie / Federal Home Loan Mortgage Corp (OTCBB:FMCC) would increase fees by 10 basis points in the four states where long foreclosure timelines make it more expensive for the GSEs to dispose of properties they take over after borrowers default. He further indicated the GSEs would also shift their fee structure so borrowers with poor credit would pay more.

Clea Benson of Bloomberg points out that FHFA’s last guarantee-fee hike of 10 bps came in November 2012. A 10-basis-point increase would cost a borrower with a $200,000 loan about $4,000 over a 30-year term.

Plan’s rationale to be evaluated fully

Mel Watt said: “I intend to announce that the FHFA will delay implementation of the loan-fee increases until such time as I have had the opportunity to evaluate fully the rationale of the plan.”

He added, “I felt it was important to announce my intentions now because of the prospect that some lenders could start to price the proposed changes into the market well before the effective dates.”

The FHFA was established in 2008 and is the regulator and conservator of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA), Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and the Federal Home Loan Bank System consisting of 12 Federal Home Loan Banks and the Office of Finance. FHFA’s task is to ensure that the GSEs operate in a safe and sound manner.

When Fannie / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie / Federal Home Loan Mortgage Corp (OTCBB:FMCC), the two taxpayer owned mortgage finance companies increase their guarantee fees, the increase are typically passed along to borrowers resulting in higher mortgage rates.