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Higher mortgage fees proposed

By Judy Martel · Bankrate.com
Monday, September 19, 2011
Posted: 4 pm ET

In the ongoing effort to reform Fannie Mae and Freddie Mac, the acting director of the Federal Housing Finance Agency, or FHFA, the regulator that oversees the two agencies, proposed charging higher mortgage fees and sharing some of the lending risk with the private sector.

At a mortgage conference Monday in Raleigh, N.C., FHFA acting director Edward DeMarco said he wants to reduce long-term risk to the two federal agencies in part by charging lenders higher fees for guaranteed mortgages, which could be passed on to borrowers. He added that the higher fees will happen gradually, probably beginning in 2012.

DeMarco also said he is considering requiring more borrowers to have mortgage insurance as a way to spread risk.  

A couple of weeks ago, President Barack Obama suggested lowering fees as part of a plan to make more borrowers eligible for mortgages. But the deficit-reduction package released Monday proposed that Fannie Mae and Freddie Mac increase fees by one-tenth of one percent for new, guaranteed mortgages. Rates could be set higher than that in areas where there is more risk of foreclosure.

DeMarco acknowledges that charging higher fees at a time when the housing market is still in crisis is difficult, but his mandate is to keep the two agencies operating. "We all knew that reforming the housing finance system was going to be difficult, but I think the general expectation was that more progress would have been made by now," he said at the conference.

Fannie Mae and Freddie Mac were on the cusp of failing in 2008 when they were taken over by the government. Taxpayers spent $140 billion to keep them in business.

Last week, it was reported that the two agencies were close to an agreement with the Securities and Exchange Commission after a three-year investigation of wrongdoing in the mortgage meltdown. Though they likely won't pay a fine, the settlement could affect the FHFA's lawsuit against 17 big banks they accuse of misleading them into buying low-quality mortgage securities.

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