State-owned Fannie Mae and Freddie Mac will increase the fees they charge lenders for guaranteeing new mortgage loans, beginning in March 2014, in a bid to reduce their market presence and woo private lenders back into the housing finance sector.
The companies will raise the guarantee fees by an average of 10 basis points, or one-tenth of a percent, the Federal Housing Finance Agency, which regulates the firms said, in a statement on Monday. The move will help the companies to reduce their footprints in the market, and ease credit risks.
“Today’s price changes improve the relationship between [guarantee fees] and risk,” Edward J. DeMarco, FHFA’s acting director said, adding that “the price changes provide better protection and return to taxpayers, who are providing the capital support that keeps these companies operating.”
The increase in fees will typically be passed on to consumers, making loans backed by Fannie Mae and Freddie Mac more expensive. DeMarco said that the hike in fees was necessary to encourage private companies to return to the sector, which they had abandoned during the financial crisis.
“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… These changes should encourage further return of private capital to the mortgage market,” DeMarco said.
According to the FHFA, Fannie Mae and Freddie Mac are also altering their fee structure to match it with the credit profile of borrowers.
The agency said it is eliminating an adverse market fee of 25 basis points levied on all mortgages purchased by Freddie Mac and Fannie Mae since 2008, except in four states -- New York, Florida, New Jersey and Connecticut -- where foreclosure carrying costs are higher than the national average.
The FHFA noted that these changes would result in an average increase of 11 basis points in guarantee fees on loan purchases from Fannie and Freddie, and would represent an average increase of 14 basis points on typical 30-year mortgages and four basis points on 15-year mortgages.
For loans exchanged for mortgage-backed securities, the price changes will be effective with settlements starting April 1, 2014. And, for loans sold for cash, the price changes will be effective with commitments starting March 1, 2014, the FHFA said.
Fannie and Freddie have received $187.5 billion in state funds since they were taken over by the federal government during the 2008 financial crisis, to save them from insolvency. Last month, the companies said they paid back about $185.2 billion in dividends to the government for that support.
Fannie and Freddie, which together own or guarantee more than 60 percent of all U.S. home loans, began earning profits in 2012 following a rebound in the housing sector, and repayments by the companies have helped the U.S. government bridge the deficit in the federal budget.