Rep. Mel Watt, D-N.C., the incoming director of the Federal Housing Finance Agency (FHFA), announced on Friday that he intends to delay the increase in the guarantee fees charged by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, announced Dec. 9 by current Interim Director Edward J. DeMarco.
In an email statement, Watt says he will 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.’
‘I do not expect to elaborate further on this statement until after I have been sworn in as director of the FHFA in January,’ he adds. ‘However, I felt that it was important to announce my intentions now because of the prospect that some lenders could start to price the announced changes into the market well before the effective dates of the changes outlined.’
The proposed g-fee hikes ruffled the feathers of most mortgage industry players because 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 were 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 last time the FHFA directed increases was in December 2011 and August 2012.
The goal of increasing the g-fees, the FHFA 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.
‘The new pricing continues the gradual progression towards more market-based prices, closer to the pricing one might expect to see if mortgage credit risk was borne solely by private capital,’ DeMarco said in a statement, at the time the increases were announced. ‘The price changes provide better protection of and return to taxpayers, who are providing the capital support that keeps these companies operating.’
The FHFA has already more than doubled the g-fees Fannie and Freddie charge since they were placed into conservatorship in 2008.
Watt was confirmed by the Senate to head the FHFA on Dec. 10 and is scheduled to be sworn-in on Jan. 6. His decision to delay the g-fee increases will be finalized as of when he is sworn-in.
David Stevens, CEO of the Mortgage Bankers Association, who is in support of Watt's decision to postpone the fee hikes, told the Wall Street Journal, ‘If these [policies] had been implemented, it would have increased borrowing costs dramatically.’