Another Body Blow To The Mortgage Market
The Wall Street Journal is reporting this morning that the fees charged by Fannie and Freddie, which are involved with nearly 2/3 of all new mortgages in this country, are about to rise sharply.
This memo released by Fannie Mae demonstrates just how sharp these increases will be. For example, a borrower looking for a fixed rate 30-year mortgage with a credit score of 735 and a 10% down payment would face a 2% upfront fee, up from .75%, which could amortize to an additional .4% mortgage rate. The announcement shows how, more than five years after a mortgage meltdown caused by excessive mortgage lending, policy makers are still scrambling to find the proper balance between decoupling the government from mortgage lending and ensuring that the economy’s comeback, as tepid as it is, is not undermined by precipitous government pull back from mortgage lending.
On the one hand, you have regulators like departing FHFA Director Edward DeMarco who has pulled in the reigns on Fannie and Freddie to protect the American taxpayer from being exposed to future bailouts. On the other hand, the simple truth is that there would be no mortgage market in this country to speak of without the continued support of the GSEs. In fact, prominent residential mortgage bond buying specialist Lewis Ranieri describes the increases as “impeccably” ill-timed.
The announcement also shows the importance of the successful nomination of Congressman Mel Watt to head the FHFA. One of his first big decisions will be whether or not to go ahead with these fee increases.
All this means that the mortgage market is in for one rocky and uncertain year. Between the expected tapering of the FED’s bond buying program, the implementation of qualified mortgage regulations and now higher fees for secondary market purchases, one of the biggest questions for the year ahead is whether the housing market will help or hinder an economic recovery.