WASHINGTON – Dec. 10, 2013 – The Federal Housing Finance Agency (FHFA) took new steps toward fulfilling its goal to downplay the role Fannie Mae and Freddie Mac play in the mortgage market.
Under FHFA’s Strategic Plan for Enterprise Conservatorships published in 2012, the agency would gradually lessen “Freddie Mac and Fannie Mae’s dominant presence in the marketplace, while simplifying and shrinking their operations.”
The latest announcement involves “guarantee fees,” or money that lenders pay to Fannie and Freddie as part of their agreement. Fannie and Freddie do not make direct loans to consumers; instead, they buy existing loans from lenders as a way to free up banks’ cash so that they can lend mortgage money to more buyers.
FHFA directed Freddie Mac and Fannie Mae to raise guarantee fees in three components:
• The base g-fee (or ongoing g-fee) for all mortgages will increase by 10 basis points
• The up-front g-fee grid will be updated to better align pricing with the credit risk characteristics of the borrower
• The up-front 25 basis point adverse market fee that has been assessed on all mortgages purchased by Freddie Mac and Fannie Mae since 2008 is being eliminated in most states.
For loans exchanged for mortgage-backed securities, the price changes will be effective with settlements starting April 1, 2014. For loans sold for cash, the price changes will be effective with commitments starting March 1, 2014. Freddie Mac and Fannie Mae will work directly with lenders to implement the changes.
FHFA says it expects the changes to produce an overall average g-fee increase of approximately 11 basis points based on loan purchases of Fannie Mae and Freddie Mac in the third quarter of 2013 – an average increase of 14 basis points on typical 30-year mortgages and 4 basis points on 15-year mortgages. The increase follows FHFA-directed increases of 10 basis points each announced in December 2011 and August 2012.
“Today’s price changes improve the relationship between g-fees and risk,” says FHFA Acting Director Edward J. DeMarco. “The new pricing continues the gradual progression towards more market-based prices, closer to the pricing one might expect to see if mortgage credit risk was borne solely by private capital. The price changes provide better protection of, and return to, taxpayers who are providing the capital support that keeps these companies operating. These changes should encourage further return of private capital to the mortgage market.”
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