Fannie Mae to raise mortgage fee in Oct

August 7, 2008
SUB-PRIME CONTAGION
Fannie Mae to raise mortgage fee in Oct
Hike in adverse market delivery charge may increase costs for
borrowers

(NEW YORK) Fannie Mae, the largest US mortgage- finance company, will
raise a fee that it charges lenders to buy their mortgages or
guarantee home-loan securities, a move that may increase costs for
borrowers.

Fannie Mae's 'adverse market delivery charge', introduced earlier
this year for all mortgages that the company helps finance, will rise
to 0.50 percentage point on Oct 1, from 0.25 percentage point,
according to a letter to lenders posted on the Washington- based
company's website.

Government-chartered Fannie Mae and Freddie Mac have been tightening
standards and raising fees since last year to boost revenue and limit
losses amid the worst housing slump since the 1930s. The changes have
made it harder or more expensive for borrowers to get home financing,
contributing to deeper price drops, said consultant David Lykken of
Mortgage Banking Solutions in Austin, Texas.

'Everyone has to go to Fannie Mae and Freddie Mac right now, as there
are very few alternatives,' he said. The latest fee increase
will 'increase loan prices and the housing market is going to get
worse'.

Fannie Mae and Freddie Mac now finance about 70 per cent of new US
home loans, according to analysts at Morgan Stanley. The US Congress
last month enacted an emergency rescue plan for the companies put
forward by Treasury Secretary Henry Paulson after a plunge in their
share prices sparked a crisis in confidence. Stock analysts expect
the companies to report net losses through the first quarter of 2009.

In the Aug 4 letter, Fannie Mae also said that it adjusted what it
will pay for, or charge in guarantee fees on, loans with certain down
payments, borrower credit scores or combinations of the two.

Costs will fall for some loans to consumers with scores greater than
620, out of a possible 850, and loan-to-value ratios of more than 85
per cent, for which Fannie Mae requires borrowers to buy insurance
that cover some of its foreclosure losses. They will rise for some
loans with down payments or home equity of between 15 per cent and 25
per cent.

'Fannie Mae is announcing these changes to better align pricing with
credit risks, mitigate losses and support Fannie Mae's ability to
provide a stable source of liquidity to lender partners,' said
Marilyn Kornfeld, a company spokeswoman.

The increase in rates on Fannie Mae loans from the various changes
will range between 0.06 percentage point and 0.18 percentage point,
according to a report on Tuesday from Barclays Capital analysts
Matthew Seltzer and Derek Chen. The average rate on a 30-year, fixed-
rate mortgage rose to 6.35 per cent on Monday, compared with 5.79 per
cent on Dec 31, according to Bankrate.com.

Fannie Mae announced the adverse-market fee in December and put it
into effect in March. McLean, Virginia-based Freddie Mac also began
charging a similar 0.25 percentage point fee.

'We're always looking at our fees in light of market developments,'
said Brad German, a Freddie Mac spokesman, on Tuesday.

With Fannie Mae's new adverse-market fee, a lender selling a
US$300,000 mortgage to the company will forfeit US$1,500, up from
US$750. The lender, which would typically make less than US$3,000 on
the sale, could get paid more to offset the charge by raising the
interest rate on the loan.

Home prices in 20 of the largest US metropolitan areas dropped 15.8
per cent from a year earlier in May as the collapse of the market for
mortgage bonds without guarantees from Fannie Mae, Freddie Mac or
federal agency Ginnie Mae eliminated certain lending completely,
according to an S&P/Case-Shiller index.

Fannie Mae, Freddie Mac, mortgage insurers such as Milwaukee,
Wisconsin-based MGIC Investment Corp and Philadelphia- based Radian
Group Inc and banks such as Seattle-based Washington Mutual Inc and
Charlotte, North Carolina-based Wachovia Corp have also announced
tighter qualification standards or higher costs for other loans.

Fannie Mae, which Congress created to expand homeownership and
provide market stability, has also loosened some standards over the
past year to combat the housing crisis and address critics.

In May, Fannie Mae said that it would scrap a rule that boosted down
payment requirements by 5 per cent in areas with falling prices, in
favour of across-the-country limits that eliminated the company's 100
per cent financing programmes completely. The change allowed down
payments of as low as 3 per cent on some loans even where prices are
declining.

That month, the company also said that it would handle refinancings
of non-delinquent mortgages for as much as 120 per cent of property
values when it owns the existing loans, and agreed to buy 'jumbo'
mortgages, or those bigger than US$417,000, for the same prices as
smaller loans.

Fannie Mae's Ms Kornfeld said that the company has now announced
reduced fees on some loans because 'providing financing options for
borrowers with modest down payments has long been a significant part
of our core business and mission, and may help stimulate housing
recovery in many communities'.