In a small step that’s part of a broader plan to bring back the secondary market for mortgages not guaranteed by the government, Fannie Mae and Freddie Mac’s regulator today announced it’s ordered the mortgage giants to increase the guarantee fees they charge lenders. 

The average increase of 10 basis points — 0.10 percent — would cost a borrower with a $200,000 mortgage about $4,000 over a 30-year loan term, Bloomberg reports.

The fee increase will go into effect Nov. 1 for loans sold to Fannie and Freddie for cash and Dec. 1 for loans exchanged for mortgage-backed securities.

The increase will likely be passed on to borrowers in the form of higher interest rates, but banking industry trade groups say the increase is small enough it won’t stall mortgage lending, Bloomberg said.

"It’s obviously going to have a small impact on pricing, but given that mortgage rates are the lowest they’ve ever been, we think it’s probably the right time to do it," Joseph Pigg, vice president at the American Bankers Association, told Bloomberg

The Federal Housing Finance Agency also said it’s about to release for public comment a proposal that would allow it to implement risk-based pricing of guarantee fees that would vary from state to state.

FHFA acting director Edward DeMarco said last fall that Fannie and Freddie lose more money when loans they guarantee go into foreclose in states with laws on the books that lengthen foreclosure timelines — so-called "judicial foreclosure" states like New York, Florida, and New Jersey.

All told, mortgage market experts expect guarantee fee increases that are expected to be phased in gradually will range from 60 to 75 basis points to well over 100 basis points. The geographic component of those increases could exceed 50 basis points, Inman News columnist Ken Harney has reported.

Fannie and Freddie increased their guarantee fees from an average of 26 basis points in 2010 to 28 basis points in 2011, regulators said in a report released today.  A basis point is one hundredth of a percent.

The companies, placed in government conservatorship in 2008, don’t originate mortgages, but guarantee payments on loans that meet their underwriting standards when they are bundled into mortgage-backed securities (MBS) sold to investors.

"Private label" MBS that aren’t guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae were a major source of funding for subprime lenders before the market for private-label MBS collapsed in the fall of 2007. Today, Fannie, Freddie and Ginnie Mae — which guarantees payments on MBS backed by loans insured by the Federal Housing Administration — are involved in funding about nine out of 10 loans.

By gradually increasing Fannie and Freddie’s guarantee fees, the Obama administration and Congress are hoping to bring back the secondary market for private-label MBS, a goal set forth in FHFA’s Strategic Plan for Enterprise Conservatorships.

In passing the Temporary Payroll Tax Cut Continuation Act of 2011 in December, Congress directed FHFA to increase guarantee fees by at least an average of 10 basis points, and to consider the cost of private capital and the risk of loss in setting guarantee fees, FHFA noted in its strategic plan.

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