The Federal Housing Finance Agency announced Friday that it has instructed Fannie Mae and Freddie Mac to raise the fees they charge lenders on loan guarantees in hopes of creating more private-sector competition in the secondary loan market.
The 10-basis-point hike would increase the average guarantee to 38 basis points, a level at which the FHFA's Acting Director Edward J. DeMarco believes would encourage more private firms to buy mortgage loans from banks and other originators. Private investors have largely withdrawn from the market because they cannot compete with low fees Fannie and Freddie charge for taking on the risk of a loan defaulting.
"These changes will move Fannie Mae and Freddie Mac closer to the level one might expect to see if more credit risk was borne solely by private capital," DeMarco said in a news release.
The FHFA is trying to encourage competition as part of its overall strategy to wind down Fannie and Freddie, which were taken over by the government nearly four years ago. It's unclear, however, if any private-sector competitors will emerge because investors are largely unwilling to buy mortgage-backed securities that are not backed by Fannie or Freddie.
The FHFA said the 10-basis-point increase for loans exchanged for mortgage-backed securities would take effect with settlements starting Dec. 1. For loans sold for cash, the hike will be effective starting with commitments Nov. 1. It said that Fannie and Freddie would work directly with lenders to implement the changes.