Starting in 2012, Fannie Mae and Freddie Mac are expected to increase their fees, which could impact homebuyers depending on the risk of their loan or the location of their home.
Here’s what you need to know – including what’s really happening and what it means to homebuyers.
What fee is being increased?
First, it’s important to remember that Fannie Mae and Freddie Mac do not actually make home loans. Instead, they provide financing to lenders by purchasing mortgages from those lenders. Then, Fannie and Freddie either keep those mortgages on their books or they package them (in the form of securities) for sale to investors.
That means, Fannie and Freddie don’t actually charge direct fees to homebuyers. But they do charge fees to lenders when they purchase home loans from those lenders. The lenders, in turn, build those fees into the home loans they offer. So the bottom line is that any increase in the fee that Fannie and Freddie charge lenders will essentially be passed on to consumers.
However, the fees likely won’t be increased the same amount across the board. For example, Fannie and Freddie may charge higher fees when purchasing riskier loans or they may vary the fees based on which part of the country the home is located in (taking into account things like the foreclosure rate of the location).
Why is this happening?
Fannie and Freddie were seized by the government three years ago to help protect them from failing. That’s important because Fannie and Freddie (along with other government agencies) actually guarantee about 9 out of every 10 new home loans—and with the challenges that the housing market has seen recently, those guarantees have been extremely important. However, Fannie and Freddie have also cost the taxpayers more than $140 Billion.
So Fannie and Freddie will gradually increase their guarantee fees next year and reduce the size of the home loans they purchase in an effort to:
1. Save taxpayers money and
2. Reduce the amount of government involvement (by attracting more private funding to the mortgage market)
What does this mean to homebuyers?
As stated above, the fees likely won’t be increased exactly the same across the board—so the impact will vary depending on the location of the home, risk of the loan, etc.
But we can look at one example to get an idea of the potential impact. For example, as the Wall Street Journal reported, if we calculate an increase of 0.1 percentage point (which is a number the White House proposed), we can see that a home loan for $220,000 would be increased by about $15 per month.
So the increase may not be very noticeable for many homebuyers. And, if people purchase a home while affordability is still high and home loan rates are still historically low, they’ll still benefit significantly compared to other times throughout history.
What should people do?
The fees are expected to begin increasing in 2012 and gradually rising thereafter. If someone you know is thinking about purchasing or refinancing, there’s still time to examine the options and make a move before the fee increase becomes much of an issue.
The best advice is to explore all options now. Call or email today at 801-792-5040 and I’ll be happy to answer any questions you may have.