Consumers may see little change in the ultimate cost of Fannie Mae or Freddie Mac loans despite a restructuring of certain loan fees announced Friday by the Federal Housing Finance Agency.
As expected, the regulator of the two government-sponsored enterprises is eliminating a 25-basis-point adverse market fee that the companies imposed on all new borrowers in 2008 when housing prices were rapidly falling.
Getting rid of the adverse market fee is "long overdue," said Isaac Boltansky, an analyst with Compass Point Research and Trading. "We are in a different housing environment than when it was implemented."
Overall, FHFA said consumers should notice little change.
"Our goal is to assure taxpayers, homeowners and industry that we are striving for an appropriate balance between safety and soundness and liquidity in the housing finance market," said FHFA Director Mel Watt said in a press release.
FHFA will continue to monitor guarantee fees closely and make adjustments, as necessary, the agency said.
As part of the changes, FHFA is revising the loan level price adjustments, which are fees based on the borrower's credit score and the loan-to-value ratio of the mortgage.
"FHFA is directing the enterprises to increase the upfront fees by 25-basis points for loans that have both a LTV ratio of 80% or less and credit score of 700 or more," FHFA said in a press release.
The agency is also imposing a new 25-basis-point fee on certain loan products, such as conforming jumbo loans with a loan amount over $417,000.
A jumbo borrower will have to pay the new fee starting Sept. 1, but not the adverse market fee.
"So in many cases it ends up being a wash with no change to the borrower," according to an FHFA official who spoke to reporters on Friday afternoon.
FHFA also revealed it is charging a new 37.5-basis-point fee on cash-out refinances, investment properties and loans with simultaneous secondary financing (piggy-back loans). The fees on these higher-risk loans are cumulative. If the owner of an investment property, for example, completes a cash refinancing, he would pay a 75-basis-point fee.
Industry representatives are likely to be disappointed, however, that FHFA is not lowering the guarantee fees for Fannie and Freddie, which range from 50-basis-points to 60-basis-points per loan. But government officials are concerned about the GSEs' profitability and lowering the GSEs revenues would not be prudent.
After reviewing the GSEs' capital requirements, targeted rates of return and credit models, FHFA concluded that the "current guarantee fee is appropriate under current circumstances."
"FHFA has established guarantee fee levels consistent with the amount of capital the Enterprises would need to support their guarantee businesses if they were not in conservatorship and retained capital," FHFA said.
(The two GSEs have been in conservatorship since September 2008 and all of their profits are deposited in the U.S. Treasury. As a result, they currently have no capital reserves.)
FHFA also used Friday's announcement to defuse a controversy over imposing an additional 25-basis-point adverse market fee on loans originated in four states (Connecticut, Florida, New Jersey and New York) where the foreclosure process is exceedingly long and takes many years to complete.
"The agency is setting aside the previous decision to implement these geographically-based fees," FHFA said.