January 3, 2014 by Leave a comment

 

Fannie Mae Fee Increases to Be Delayed 

 

Mel Watt, who is scheduled to be sworn in as director of the Federal Housing Finance Agency on Jan. 6,  said he will delay a planned increase in the fees the U.S.-owned companies charge to guarantee mortgages. The announcement by Watt follows complaints by mortgage bankers and other housing-industry participants that the higher fees set to take effect in March and April were too steep and sudden. Such increases typically are passed on to borrowers in the form of higher interest rates. Fees were to be raised  10 basis points

 

 

“This is a troubling sign of Watt’s upcoming tenure,” John Berlau told totalmortgage.com.  Berlau, a Senior Fellow for Finance and Access to Capital at the Competitive Enterprise Institute.  expressed concern about the Watt appointment when it was announced. He said “Taxpayers and Fannie and Freddie shareholders deserve to be compensated for the risks they are taking. Not raising fees also fosters more dependence on the GSEs, as lenders are less likely to look at private- sector competitors to guarantee mortgages.”

 

Fannie and Freddie also would shift their fee structure so borrowers with poor credit would pay more. Watt said he intends to delay all of those changes until he has time “to evaluate fully the rationale for the plan” and how it would affect the availability of credit and the companies’ risk exposure. FHFA’s last guarantee-fee increase, of 10 basis points, came in November 2012. An 10-basis-point increase would cost a borrower with a $200,000 loan about $4,000 over a 30-year term. Major trade associations such asThe Mortgage Bankers Association welcomed the announcement from Watt. Berlau said “Fannie and Freddie should charge fees commensurate to loans’ risks. If banks and real estate agents don’t like it, they should find someone else to guarantee their mortgages. And since I want the GSEs to shrink, this is good public policy for that reason as well.”

 

 

A report from Marketwatch said the housing market will benefit next year under Watt. When the delay was announced homebuilder stocks soared on news of the delay. Critics have warned about raising fees as the housing market also faces new mortgage rules and rising rates for loans, among other challenges. Marketwatch quoted Jack Micenko, an analyst with Susquehanna International Group, a Bala Cynwyd, Penn.-based quantitative trading firm. He said delaying the fee hikes could help first-time buyers, a key portion of the housing and mortgage markets, said “We see Mel Watt as incrementally positive for the housing recovery,” Micenko said. “Delaying the risk-based fee implementation is the first real sign of that, and he’s been on record historically as an advocate for obtainable and affordable housing.”

 

Bloomberg

When announced, the news was greeted by a rush into homebuilder stocks. KB Home had  a 6.4% gain. PulteGroup Inc. shares were up more than 5%. Shares of Hovnanian Enterprises Inc. Beazer Homes USA Inc. and Toll Brothers Inc. rose 4% or more. Lennar Corp. and D.R. Horton Inc. were up about 3%. Sterne Agee analyst Jay McCanless said that the delay in the fee hike is a positive for housing affordability. “We believe any increase in a bank’s cost to originate a mortgage (i.e., GFees) will ultimately be borne by consumers through higher mortgage rates. We do not have an estimate of how much higher mortgage rates would have moved with a GFee increase, but we view the delay as an incremental positive for housing affordability.”

for the Mortgage Bankers statement on Mel Watt:

http://www.mbaa.org/NewsandMedia/PressCenter/86529.htm#

 

sviuker@mindspring.com'

Steve Viuker is a Brooklyn, New York business journalist. He has covered real estate, small business and banking for numerous national online and print media.


Filed Under: ,
Tagged with: , , , ,


Leave a Reply

Your email address will not be published. Required fields are marked *