In his first major move as head of the agency that oversees Fannie Mae and Freddie Mac, ex-Rep. Mel Watt said Wednesday that he will delay a planned fee hike that would have raised the cost of most home loans backed by the government-sponsored enterprises.
The fee hike had been proposed by Watt's predecessor, Ed DeMarco, who had been acting head of the Federal Housing Finance Agency since 2009 before leaving that post this week. DeMarco, who is now the agency's senior deputy director, had argued that raising the fees would help bring private capital back into the mortgage market and better reflect the credit risks of borrowers.
The delay was widely expected. Watt, a longtime Democratic congressman from North Carolina who was sworn in to lead the agency on Monday, indicated last month that he planned to reverse course on the increase to so-called guarantee fees.
Watt said he plans to conduct a thorough evaluation of the proposed fee hike to gauge its impact on the mortgage market at a time when the industry is grappling with a slew of new regulations. The most notable is the Consumer Financial Protection Bureau's qualified-mortgage rule and ability-to-repay requirements that take effect Friday.
"The implications for mortgage credit availability and how these changes might interact with the new qualified mortgage standards could be significant," Watt said in a press release. "I want to fully understand these implications before deciding whether to move forward with any adjustments to g-fee pricing."
The proposed fee increase would have raised annual guarantee fees by 10 basis points for all mortgages backed by Fannie and Freddie and would have eliminated an up-front 25 basis point "adverse market fee" that has been assessed on all mortgages purchased by Fannie and Freddie since 2008.
The increase was set to take effect on March 1 for loans sold for cash and on April 1 for loans exchanged for mortgage-backed securities. The higher fees would have hit a large group of borrowers — those who do not make large down payments of at least 20% and who have credit scores ranging from 680 to 760.
Watt said it will take at least four months after completing the evaluation before any changes would be implemented.