Fannie Mae raises fees again to mitigate losses
Written on August 6, 2008
Fannie Mae is raising some fees on mortgage loans its purchases, marking the fourth increase in nearly a year, to reflect higher credit risk and offset losses from continuing market deterioration.
The steady rise in fees has modestly boosted home loan rates during the worst housing crisis since the Great Depression, some analysts say.
Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and its smaller counterpart, Freddie Mac <FRE.N, have been increasing fees to better reflect the risks caused by slumping home prices and mounting defaults and foreclosures.
The so-called Adverse Market Delivery Charge on all mortgages Fannie Mae buys from lenders and loans it packages into securities will double starting October 1, the largest U.S. home funding company said late Monday on its Web site.
The charge will rise to 0.50 percentage point from 0.25 point.
Matthew Seltzer, analyst at Barclays Capital, said Fannie Mae has indicated over the past year that its rising fees have aimed at maintaining capital as losses and expectations of losses mounted.
“The flip side is that these fees have a cost,” he said.
“Originators are the ones that have to pay these up-front fees, and the originators need to be compensated paydayloans.com. They most likely will turn around to the borrowers and factor those higher fees into higher mortgage rates,” Seltzer said. “What’s the effect? All else being equal, it has the effect of pushing mortgage rates higher, which is not exactly conducive to generating new business.”
Filed in: management, money.