Mel Watt, who is scheduled to take the reins of the Federal Housing Finance Agency Jan. 6, says he plans to delay proposed increases in fees that Fannie Mae and Freddie Mac charge lenders to offset the risk of securitizing mortgages, Bloomberg reports.

Lenders and other industry participants claimed that the increases, some of which were announced on Dec. 9 by Edward J. DeMarco, the FHFA’s current acting director, were too drastic and would unfairly jack up mortgage rates for a large swath of borrowers.

Pricing updates recently issued by Fannie and Freddie in response to FHFA’s direction showed that fees would rise sharply on loans to borrowers making down payments of less than 20 percent and credit scores in the 680 to 760 range, The Wall Street Journal reported.

A lender funding a 30-year fixed-rate loan to a homebuyer with a 735 credit score and putting 10 percent down on a home purchase would pay fees totaling 2 percent of the loan amount, up from 0.75 percent today, which would translate into a 0.4 percentage-point increase in their borrower’s mortgage rate.

“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,” Watt said in an e-mail to reporters, Bloomberg said.

The increased guarantee fees and loan-level pricing adjustments are intended to make privately financed mortgages not backed by Fannie and Freddie more competitive. Guarantee fees cover investors who buy securitized mortgages from Fannie Mae and Freddie Mac, ensuring that they continue to receive principal and interest payments even when borrowers default. Loan-level pricing adjustments are intended to provide an additional margin of safety on riskier loans.

Lenders who sell mortgages to Fannie Mae and Freddie Mac pay the fees to the two institutions. If Fannie and Freddie raise the fees, lenders generally pass the cost of the increases on to borrowers in the form of higher rates.

Source: Bloomberg

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription