An effort to loosen Fannie Mae and Freddie Mac's grip on the mortgage market will come at a price: pricier mortgages. The two announced late Monday that, at the insistence of the Federal Housing Finance Agency, they will increase their fees to borrowers without impeccable credit (designated as those with scores of 680 to 760 out of 850) or those making a down payment of less than 20%. The Wall Street Journal provides an example:
- A borrower making a 10% down payment and carrying a credit score of 735 would currently pay 0.75% of the loan amount in fees on a 30-year fixed-rate mortgage. In 2014, that would rise to 2%, a fee that the Journal calculates would raise the mortgage rate some 0.4 percentage points.
And even those making a down payment of more than 20% will see the fees rise if they're in the so-so credit zone. The changes go live in March, but may start showing up earlier. The reason for the move: to make it more competitive for private investors, who "target a higher rate of return" and charge higher fees, to back mortgages. Fannie and Freddie back about two-thirds of America's mortgages, and a FHFA official says even the new rates will be lower than private ones. The Journal pairs that with some gloomy responses, such as this from Lewis Ranieri, credited with co-inventing the mortgage-backed security. He thinks the private sector isn't in a position to lend more yet, so "you're just making housing less affordable." Meanwhile, Daily Finance provides a brief respite from the gloom, reporting that, as they do each holiday season, Fannie and Freddie won't evict residents of foreclosed single-family homes between today and Jan. 3—a move that could affect as many as 11,000 families.