Mortgage borrowers in five states -- Connecticut, Florida, Illinois, New Jersey and New York -- would have to pay more for their loans starting next year, under a proposal by the agency that controls mortgage giants Fannie Mae and Freddie Mac.
Those five states have "default-related carrying costs that significantly exceed the national average," according to the Federal Housing Finance Agency. So the agency will require Fannie and Freddie to charge higher fees on lenders when they buy mortgages in those states.
For you, the borrower, it boils down to this: If you get a mortgage in one of those five states, you will have to pay higher upfront fees or a higher interest rate, or both.
FHFA invites public comment for 60 days. Then it will implement the higher fees in 2013.
The agency plans to impose the higher fees because it costs more to foreclose on properties in those states. Foreclosure timetables are longer, and property taxes and "legal and operational expenses" are higher, FHFA says.
The surcharges vary. On a $200,000 mortgage:
- A lender in Illinois would pay a $300 surcharge.
- A lender in Florida, Connecticut or New Jersey would pay a $400 surcharge.
- A lender in New York would pay a $600 surcharge.
Lenders would pass these fees on to borrowers in myriad ways. Some lenders might simply raise origination fees. Some might itemize the higher costs as a "government-sponsored enterprise surcharge." Some lenders might charge higher discount points. Maybe some lenders will bump up their interest rates an eighth of a percentage point or more.
In FHFA's announcement today, the agency says the higher fees will translate into minor increases in interest rate. It says rates in Illinois might go up by 0.03 percentage point, and in other states, by 0.04 or 0.06 percentage point.
But that's not how mortgage rates work. A lender doesn't charge 5 percent in Georgia and 5.04 percent in Florida. Fixed mortgage rates are set in increments of an eighth of a percentage point, or 0.125 percent. When FHFA protests that the surcharge will bump up rates by 0.03 to 0.06 percentage points, the agency is being silly or disingenuous.