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Higher mortgage fees on the way

By Polyana da Costa ·
Wednesday, September 5, 2012
Posted: 6 am ET

Borrowers who want to beat higher mortgage fees should get moving. Conventional mortgages are about to get more expensive.

Fannie Mae and Freddie Mac will increase the fee they charge lenders to guarantee loans. The added cost will likely be passed on to borrowers. Fannie and Freddie own or guarantee about half of the outstanding mortgages in the United States. The higher fee does not apply to existing mortgages.

The Federal Housing Finance Agency says guarantee fees will increase by an average of 10 basis points. The hike goes into effect on Nov. 1 for certain loans and Dec. 1 for others. Lenders will likely price their mortgages based on the higher fees sooner than that to allow time for closing.

This is not a fee paid directly by the borrower. Lenders probably will recoup the extra expense by charging borrowers a slightly higher interest rate. In the current low-rate environment, a 10-basis-point increase may not make much of a difference on your monthly payments, but it's significant over the life of the loan.

For example, a borrower taking out a $250,000 30-year mortgage would pay about $15 per month with the hike. Pocket change? It adds up to about $5,400 over 30 years.

Why is the FHFA making mortgages more expensive? The goal is to minimize potential losses for Fannie and Freddie.

"These changes will move Fannie Mae and Freddie Mac pricing closer to the level one might expect to see if mortgage credit risk was borne solely by private capital," says Edward J. DeMarco, acting director of FHFA.

Do you agree with the fee hike?

Follow me on Twitter @Polyanad.

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Diane Carlisle
September 10, 2012 at 10:31 am

If you have 20% to put down on a home loan, use it to purchase investment property instead. You can put 30K into a condo and rent it out for $700.00 per month. What kind of return are you getting with it sitting in the bank collecting a fraction of that as interest income?

September 10, 2012 at 8:32 am

I do NOT agree with the hike...I agree with KJ's comment that we r in this pickle to people being loaned money with low or no downpayment to buy homes they could never afford..and now people want us to bail them out.

I always put 20% down on a home and ONLY bought a home I could afford...

Greed was the name of the US Government in allowing these 0% loans to be done in the first place...The government NEEDS to get OUT of the lending business, and any OTHER private businesses they are trying to take over ( including health !)

September 10, 2012 at 8:25 am

How about getting rid of 10 basis points of the government bureaucracy? Or maybe more than that. People talk about the unemployment rate --- I think it needs to go UP - at least for government workers. I used to work in the VA system; there are many people there whose only function is to come up reasons why they're job is necessary. e.g. "re-writing" policies every 6 months just because they need to be re-written.
That's where government waste really comes from, and that's why Fannie and Freddie need to raise their fees.

Jeff Spencer
September 10, 2012 at 12:17 am

I never see many comments about Private Mortgage Insurance, but all of the talk about Freddie and Fannie "shouldering the risk" makes me wonder. I've now been paying on my mortgage for over 7 years, and because of the drop in real estate values, I still pay PMI. Why isn't anyone talking about this? Everybody who bought with less than 20% down is in the same boat. Who are the insurance companies who underwrite the PMI, and what happens when a borrower defaults on their mortgage.

I don't understand how this all works, but something feels fishy...

September 09, 2012 at 11:37 pm

agree with AJ

September 09, 2012 at 9:24 pm

YES, however... we would have never ended up in this point in time if it had not been for the government and the finacial institutes making it possible for indiiduals for whom they should have never been allowed into a home and/or a home loan... it was all done out of pure GREED for the all-mighty dollar! Ultimately, not until you put an end to this type of behavior of looking for any and every means of squeezing money out of a stone; this type of this will happen again and again...

As stated in the Movie "Wall Street" for a lack of a better term... Greed is Good! Wall Street, Finacial Institutes, Big Corportations, Big Oil all operate under this belief and they do it with the backing and bleesing of the US Government for whom they fund themselves every 2-4 years

September 07, 2012 at 9:06 pm

Tremendous analsis everyone should read.

Shawn Brown
September 06, 2012 at 12:09 pm

Whatever we need to do to stablize these companies. Its still a great time to take advantage of all the great programs out there. It may take some jumping through Hoops but its worth it. Just saved a family $500 a month by converting them to an FHA loan from a Subprime loan. The market is slowly coming back. I encourage everyone to reach out for some good advise.

September 06, 2012 at 8:39 am

Yes, i agree with this hike because interest rates are more than fair, and FNM and FRE risks are still on the shoulders of taxpayers. The government needs to get out of the lending business. Too many people expect the risks of their individual economic decisions to be borne by other taxpayers. If they can't afford a home they should rent one and save until they can.

lincy @ Charlotte Mortgage Company
September 06, 2012 at 2:22 am

hey nice to read your blog good one to read, got some useful tips ,....thanks alot