Magnitude of proposed Fannie, Freddie fee hikes catches industry by surprise

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The magnitude of proposed increases in fees that Fannie Mae and Freddie Mac charge lenders to offset the risk of securitizing loans has caught the lending industry by surprise, and Mel Watt, the new head of the mortgage giants’ federal regulator, is likely to face pressure from consumer groups and mortgage lenders to reverse them, the Wall Street Journal reports.

The Federal Housing Finance Agency announced on Dec. 9 that it was directing Fannie and Freddie to institute guarantee fee increases in March and April averaging 14 basis points on typical 30-year mortgages. The increases are intended to make privately financed mortgages not backed by Fannie and Freddie more competitive.

Pricing updates issued Monday by Fannie and Freddie in response to FHFA’s direction showed that fees will 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 the borrower’s mortgage rate.

“It’s like Beyoncé’s album: It all of a sudden hit the market,” Mortgage Bankers Association CEO David Stevens told the Journal’s Nick Timiraos. Source: online.wsj.com.

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