Fannie, Freddie to Raise Fees
Fannie Mae and Freddie Mac will raise the fees they charge to guarantee single-family mortgages, beginning this fall, the Federal Housing Finance Agency has announced.
The increase, which will average 0.1 percent of the loan amount (10 basis points), will go into effect on Nov. 1. The current guarantee fee averages 28 basis points, or 0.28 percent of the loan amount.
The increase is intended to attract more private funds into the mortgage market by reducing the pricing advantage held by Fannie Mae- and Freddie Mac-backed mortgages, according to Edward DeMarco, acting director of the FHFA.
The fee increase will not be applied uniformly to all types of mortgages. Specifically, fixed-rate mortgages with terms of longer than 15 years will see greater fee increases than those with terms of 15 years or less, according to the FHFA.
The FHFA said that lower-credit risk mortgages have been effectively subsidizing higher-credit risk loans, and that the fee increase is intended to address that.
In addition, the fee increase is intended to reduce the difference in guarantee fees charged to smaller lenders versus large lenders. Currently, according to the FHFA, the majority of single-family mortgages guaranteed by Fannie Mae and Freddie Mac are originated by a handful of large lenders.
Analysts estimate that the fee increases will generate an additional $25 billion in revenue for Fannie Mae and Freddie Mac per year.
On average, a 10 basis point increase in guarantee fees will cost borrowers an average of an additional $100 per $100,000 borrowed. The current guarantee fees average $28 per $100,000 borrowed.
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