new mortgages to get pricier next year

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POLITICS AND POLICY

New Mortgages to Get Pricier Next Year Increase in Fannie, Freddie Fees to Hit Borrowers Without Perfect Credit or Big Down Payments

Dec. 17, 2013 7:34 p.m. ET

Consumers can expect to pay more to get a mortgage nextyear, the result of changes meant to reduce the role thatFannie Mae and Freddie Mac play in the market.

The mortgage giants said late Monday that, at the directionof their regulator, they will charge higher fees on loans toborrowers who don't make large down payments or don'thave high credit scoresa group that represents a large

Fannie and Freddie, which currently back about two-thirds of new mortgages, are set to charge higher fees, a move that will affect rates for many new borrowers. Here, a housing development in Oa kland,Calif. Getty Images

By NICK TIMIRAOS
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share of home buyers. Such fees are typically passed alongto borrowers, resulting in higher mortgage rates.

Fannie and Freddie, which currently back about two-thirds of new mortgages, don't directly make mortgages but instead

buy them from lenders. The changes are aimed at leveling the playing field between the government-owned companies and private providers of capital, who are mostly out of the mortgage market now.Fannie and Freddie were bailed out by the government during the financial crisis but are now highly

profitable.

The Federal Housing Finance Agency last week signaled the fee increases but didn't provide details. Theagency's move came one day before the Senate voted to confirm Rep. Mel Watt (D., N.C.) as its director.It isn't clear whether Mr. Watt, who hasn't yet been sworn in, weighed in on the changes. An FHFAspokeswoman declined to comment on any discussions with Mr. Watt, who also declined to comment.

Mr. Watt will face heavy pressure by consumer groups and the real-estate industry to reverse course,industry officials said Tuesday. "There will be significant opposition very quickly once people understandwhat is actually being implemented," said Martin Eakes, chief executive of the Center for Responsible

Lending in Durham, N.C., a consumer-advocacy nonprofit.

The changes take effect in March but will be phased in by lenders earlier. The fee increases come as theFederal Reserve contemplates an end to its bond-buying program, which has kept mortgages rates low,and as new mortgage-lending regulations take effect next month.

"The timing of it is impeccably bad," said Lewis Ranieri, co-inventor of the mortgage-backed security. "The questionbecomes: how much can housing take?"

In updates posted to their websites on Monday, Fannie and Freddie showed that fees will rise sharply for many borrowers who don't have down payments of at least 20% and who have credit scores of 680 to760. (Under a system devised by Fair Isaac Corp., credit scores range from 300 to a top of 850.)

A borrower seeking a 30-year fixed-rate mortgage with a credit score of 735 and making a 10% downpayment, for instance, would pay fees totaling 2% of the loan amount, up from 0.75% now. The 2%upfront fee could raise the mortgage rate by around 0.4 percentage points.

Borrowers with larger down payments could also be affected. Fees for a loan with a 690 credit score anda 25% down payment would rise to 2.25% from 1.5%.

Executives at Fannie and Freddie said last month that the fees they have been charging are enough tocover expected losses, but that those fees might need to rise in order to allow private investors, whichtarget a higher rate of return, to compete. An FHFA official Tuesday said that even with the latestchanges, Fannie's and Freddie's fees would be considered low relative to private firms'.

Mr. Ranieri, who runs a mortgage-investment firm, predicted that the move would backfire and hit theeconomy. Because the private sector isn't strong enough to lend more, "all this will do is tighten credit.You're just making housing less affordable," he said.

Consumers can expect to pay more to get a mortgagenext year, the result of changes meant to reduce therole that Fannie Mae and Freddie Mac play in themarket. Nick Timiraos joins the News Hub withdetails. Photo: Getty Images
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new mortgages to get pricier next year

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