As promised, Mel Watt, the new director of the Federal Housing Finance Agency (FHFA), conservator of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, said Wednesday that the GSE guaranty fee hikes announced in December by former Interim Director Edward DeMarco have been postponed.
As per a press release, the increases will be delayed until the FHFA has conducted a thorough evaluation of the proposed changes and their likely impact on the housing market.
The FHFA will provide at least 120 days' notice before implementing any g-fee hikes, the release states.
‘The implications for mortgage credit availability and how these changes might interact with the new qualified mortgage standards could be significant,’ Watt said in the release. ‘I want to fully understand these implications before deciding whether to move forward with any adjustments to g-fee pricing.’
Watt had said in a statement in late December that he would delay implementation of the new fee structure ‘until such time as I have had the opportunity to evaluate fully the rationale for the plan and the plan's likely impact on the [GSEs'] risk exposure, the cost and availability of credit, and how the plan would interface with the qualified mortgage standards.’
The proposed g-fee hikes were controversial because some industry experts feared they would sharply increase the upfront fees for borrowers with less-than-perfect credit scores or who cannot make significant down payments.
As per the FHFA's press release dated Dec. 9, the first of the g-fee increases was to take effect in March, with the remainder spread throughout the year.
Specifically, the base g-fee (or ongoing g-fee) for all mortgages was to increase by 10 basis points; the upfront g-fee grid was to be updated to better align pricing with the credit risk characteristics of the borrower; and the upfront 25-basis-point adverse market fee that has been assessed on all mortgages purchased by the GSEs since 2008 was to be eliminated, except in the four states (Connecticut, Florida, New Jersey and New York) whose foreclosure carrying costs are more than two standard deviations greater than the national average.
The adjustments were expected to produce an overall average g-fee increase of approximately 11 basis points, based on GSE loan purchases in the third quarter of 2013. This represents an average increase of 14 basis points on typical 30-year mortgages and four basis points on 15-year mortgages.The goal of increasing the g-fees, DeMarco had said, was to infuse the market with more private capital by opening up more credit risk sharing to investors, as well as to reduce the GSEs' dominance in the marketplace in preparation for their inevitable transition out of government conservatorship. Currently, there are several housing finance reform bills before Congress that call for the GSEs to be either returned to the private sector, partially dismantled and/or replaced with a government backstop, or completely dissolved.
