Fannie Mae and Freddie Mac Increase Guarantee Fees Per Regulations

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The Federal Housing Finance Agency (FHFA) directed Fannie Mae and Freddie Mac to increase its guarantee fees on mortgages for single-family homes by 10 basis points. According to the housing regulator, the increase will encourage private firms to participate in the mortgage market.

Fannie Mae and Freddie Mac Increase Guarantee Fees Per Regulations

In a statement, FHFA Acting Director Edward J. DeMarco said, “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 firm.”

The agency said the increase will standardized the guarantee fees charged by The Federal National Mortgage Association (FNMA) better known as Fannie Mae and Freddie Mac to lenders that deliver large and small volumes, and it will reduce cross-subsidies between higher-risk and lower-risk mortgages by increasing the guarantee fees on loans with maturities longer than 15 years.

Fannie Mae and Freddie Mac will work directly with lender to implement the increase which will start on the first day of November for loans sold for cash. The increase in loans exchanged for mortgage-back securities will begin on December 1.

The FHFA finally implemented its plan of gradually increasing the guarantee fees charged by the mortgage giants after a year of planning to boost its lending and homeownership program under the “Strategic Plan for Enterprise Conservatorship.”

According to the agency the average guarantee fee charged by the Fannie Mae and Freddie Mac in 2010 increased by 26 basis points in 2010 and 28 basis points in 2011.

Fannie Mae and Freddie Mae were place under the U.S. government under conservatorship in September 2008 to prevent them from bankruptcy due to investment losses in risky loans. The mortgage giants received $188 billion in taxpayers’ money to keep their business operations running. So far, both companies have repaid the federal government approximately $46 billion in dividends.

Earlier this month, the FHFA also amended the terms of its bailout agreement with Fannie Mae and Freddie Mac to speed up the reduction of both companies investment portfolios by increasing the annual rate from 10 percent to 15 percent. The agency required the mortgage giants to lower their investment portfolios to $250 billion by 2018. Both companies were also required to submit a yearly action plan to reduce the exposure of taxpayers to mortgage credits risks to the Treasury Department.

Wells Fargo & Company (NYSE:WFC) is the largest lender in the United States . The bank will surely be affected negatively or positively by any regulatory changes in the housing market.  Fannie Mae and Freddie Mac are selling back the bad home mortgages to lenders including Bank of America Corp (NYSE:BAC), Citigroup (NYSE:C),  JP Morgan Chase (NYSE:JPM), and Wells Fargo & Company (NYSE:WFC).


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