Fannie Mae and Freddie Mac, the two government backed mortgage lending giants announced that they will be raising loan guarantee fees by an average of 10 points or one-tenth of a percent starting March 2014, according to several news reports. This move will enable private lenders compete in the housing loan market.
Fannie and Freddie have been providing home loans at affordable rates for a long time now. The two government based firms' dominant presence in the market hampered the growth of private mortgage lending in the country.
"The price changes provide better protection of and return to taxpayers, who are providing the capital support that keeps these companies operating. These changes should encourage further return of private capital to the mortgage market," Edward J. Demarco, acting director of The Federal Housing Finance Agency (FHFA), said in a statement to Reuters.
Talks of reducing Fannie and Freddie's footprints in the market have been on since 2011. Interest rates have more than doubled since 2009. The FHFA is proposing some other measures to dilute the presence further. Credit risk pricing frameworks will probably be upped too. The average fee increase will be about 11 points, reports The Chicago Tribune.
The 'Private' Side
Meanwhile, big private banks are shying away from the mortgage lending market leaving the sector open to small lenders. The Wall Street Journal reports that as of the third quarter of 2013, small mortgage lenders hold a 60 percent market share.
Strict capital rules and the involvement of mortgage brokers are keeping the big players away. However, that does not mean that the small lenders are offering risk-filled loans.
"You have more lenders offering mortgage products at a localized basis. Instead of having to go to Wells Fargo, now you've got every one of your community lenders and you can compare on pricing and on underwriting," Guy Cecala, chief executive and publisher of Inside Mortgage Finance told the Journal.
Fannie and Freddie Merging
Several proposals have been submitted in the senate regarding the merging of the two firms. This step was also intended at transferring the mortgage activity to the private sector.
Fannie and Freddie were bailed out by the government when the housing market crashed in 2007. The companies received an aid of around $170 billion of which they have repaid just around $52.3 billion.
However, the two firms have been paying off considerable amounts to the Treasury Department since they returned to profitability. Their stocks (trading over-the-counter-bulletin board) have gained more than 1000 percent over the year, reports CNN Money.
Current Interest Rates
Meanwhile, the average interest rates in the country are mapping a steady growth. The average 30-year mortgage rose to 4.46 percent and the average 15-year rates jumped to 3.47 percent, as of Thursday, Dec. 5. The rates have peaked to their highest since September.
This rise is attributed to low inventory, limited supply and increasing demand.
