November 29th, 2012 8:44 PM by Linda Barratt PA and Justin Cervantes, PA
New mortgage borrowers in five U.S. states, including Florida, would pay higher fees for a loan than those in other states in a move opposed by Florida Chief Financial Officer Jeff Atwater, Florida Realtors and the National Association of Realtors® (NAR).Fannie Mae and Freddie Mac – now under the Federal Housing Finance Authority (FHFA) – have traditionally charged guarantee fees (g-fees) to single-family home borrowers. The fees generally cover credit risks, and they vary based on the type of loan and a specific borrower’s credit risk.For the first time, however, FHFA plans to increase guarantee fees in only five states – including Florida. According to FHFA, foreclosures cost Fannie Mae and Freddie Mac more in Florida, and to offset that higher cost, they’ll charge new borrowers more for a mortgage. FHFA points to Florida’s longer foreclosure timeline – an average of 660 days – and its court foreclosure system as the cause.“It’s simple: Florida’s foreclosure process protects homeowners,” says 2012 Florida Realtors President Summer Greene. “However, FHFA seems to think it’s a trade-off. If we want to protect homeowners, we should pay for it – and under this rule, first-time buyers and families would pay for it in the form of higher fees on every Fannie Mae and Freddie Mac mortgage.”Earlier this week, Atwater wrote a letter to FHFA asking them to withdraw the proposed rule, which would take effect sometime in 2013. He made the following points:• The guarantee-fee standard isn’t fair. Twenty-six states have “carrying costs” above the national median.• The suggested 20 basis points guarantee fee increase for Fannie Mae and Freddie Mac’s single-family Florida mortgages would raise the lifetime mortgage cost by potentially thousands of dollars.• Guarantee fees have already been raised substantially in recent months; on average, guarantee fees increased from 26 basis points nationally in 2010 to 28 basis points in 2011, with another average hike of 10 basis points ordered this year.• Floridians, along with all U.S. taxpayers, spent nearly $190 billion bailing out Fannie Mae and Freddie Mac. It’s “unconscionable to think that Fannie Mae and Freddie Mac want to take more of taxpayers’ hard-earned dollars through higher fees before resolving more fundamental problems,” Atwater says.• Currently, Fannie Mae and Freddie Mac service about 1.9 million single-family loans in Florida. Higher guarantee fees would weaken demand and reduce their value when it’s time to sell.“It is my expectation that the FHFA will address the concerns I have raised and reconsider its short-sighted and financially burdensome proposal in favor of a more comprehensive solution to its financial situation,” Atwater concluded.A description of the guarantee fee changes impacting Florida is included in the Sept. 25, 2012, Federal Register. A copy is posted online.
In a nutshell...Conventional mortgage rates are moving higher. We have already seen guarantee fees move up this year on Conventional financing and a direct increase in interest rates as a result.
These increases are not a result of market movements or economic data that effects Mortgage Backed Securities (MBS) or Federal Bonds. The increases are a direct impact to borrowers by the FHFA. The g-fees are supposed to help mitigate the risk with compensation, but the increases are also going to have a serious slowing effect to our recovering housing market (both real estate and financing sectors will feel the impact).
Until next time...JJ