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New FHFA Head will Delay Proposed Mortgage Fee Hike

Robert M. Siegel
Former North Carolina congressman and the new head of the Federal Housing Finance Agency (FHFA), Mel Watt, has given the public a sneak peek of how he will lead the FHFA. On December 20 he released a statement expressing his intentions to delay the Agency’s earlier announced plan to increase mortgage fees on loans borrowers seek that will ultimately be sold to Fannie Mae and Freddie Mac.

Fee Hike Originally Proposed by Watt’s Predecessor
Watt, who was sworn in yesterday, replaces Ed DeMarco, who President Obama appointed in 2009 after the agency’s previous head resigned. It was under DeMarco’s tenure that the Agency announced its plan to implement a March/April 2014 fee hike. The so-called guarantee fee would increase by an average of eleven basis points overall. DeMarco explained that the fees were designed to bring more private capital into the market. However, some contend that the fees make little sense since Fannie and Freddie are already so flush with profits. In fact, Fannie and Freddie have been doing so well that they have already paid back almost all of their $187 billion taxpayer-funded bailout.

Fee Hikes Will Have Significant Impact On Borrowers
If implemented, the fees will end up having the most significant effect on individual borrowers. Borrowing costs will increase either by borrowers paying the higher fee when they close on their mortgage loans, or by rolling the higher fee into their interest rate and thereby raising their monthly mortgage payments.

Watt’s advocates for this proposed delay in increasing these fees include certain industry groups and lawmakers who indicate that they are seeking to promote affordable housing. They have suggested that he will do more than DeMarco did to help make homeownership an achievable option. Although Watt has not affirmatively said whether he will cancel the fee hike entirely or only postpone it, many analysts suggest that if the delay in implementation turns out to end up as a long term postponement or cancellation of the fee increase, then it will become even more difficult to unwind Fannie and Freddie and to bring private capital into the marketplace.
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