by Calculated Risk on 12/20/2013 05:23:00 PM

From mortgage broker Lou Barnes:

Concealed by all the taper twitter: the last acts of a modern Scrooge. Since 2009 Edward DeMarco has been in charge of the FHFA and its duties as conservator of Fannie and Freddie (the GSEs) after their failure in the credit panic of 2008. In DeMarco's defense: no hotter potato was ever handed to anybody, Congress has been contradictory and undermining, and the White House and Treasury AWOL. DeMarco correctly saw his job as protecting taxpayers, but like so many pinched denizens of counting houses thought the best policy was skinflint.

In a credit disaster, one sure way to make it worse: choke what little credit remains. DeMarco has for five years recalibrated GSE underwriting to strangulation. Evidence: the default rate on new production has fallen 90% below pre-bubble levels.

In the well-intended effort to pay back Treasury assistance, and to risk adjust loan pricing, DeMarco brought us the hated Loan Level Pricing Adjustments. The GSEs now run large profits and have rebated their bailout to the Treasury. But this week DeMarco announced another round of LLPA hikes and increased the GSEs' securitization guarantee fee, now triple its pre-bubble percentage. ... Now we waterboard everybody, including supremely qualified investors, and in Libertarian zeal surcharge to death low-down borrowers.

DeMarco's replacement, Mel Watt, has already been confirmed by Congress. The Fed even post-taper, trying to keep rates low, is still buying nearly all net-new GSE production. Yet this week DeMarco, sitting in his chair as it is wheeled out to thankless retirement, gave orders to raise the cost of mortgages on the theory that if Fannie loans become expensive enough, private markets will take over. Total private-market securitization this year: about $13 billion, roughly one week of GSE-based production. The big housing question in 2014: will Mel Watt begin to reverse DeMarco's damage?
emphasis added

And from economist Tom Lawler:

On December 9 the FHFA announced that it was directing Fannie Mae and Freddie Mac to raise guarantee fees in three components:

• The base g-fee (or ongoing g-fee) for all mortgages will increase by 10 basis points;
• The up-front g-fee grid will be updated to better align pricing with the credit risk characteristics of the borrower; and
• The up-front 25 basis point adverse market fee that has been assessed on all mortgages purchased by Freddie Mac and Fannie Mae since 2008 is being eliminated except in the four states whose foreclosure carrying costs are more than two standard deviations greater than the national average.

This week Fannie Mae announced that, per FHFA’s direction, it was increasing all ongoing single-family guarantee fees by 10 basis points, and was removing its 25 bp upfront “adverse market delivery charge” for all SF deliveries save for mortgages in Connecticut, Florida, New Jersey, and New York. It also released upcoming changes in its “loan-level price adjustments” (what FHFA referred to as the “up-front g-fee grid) that for 30-year mortgages produces additional fee hikes for many potential borrowers.
...
So what does this mean? Well, for a borrower with a 720 credit score who plans to put down 20%, and get a 30-year fixed-rate loan, Fannie’s new pricing for that loan would include (1) a 10 bp/annum higher g-fee; (2) a net 50 bp higher up-front fee (+ 75 bp LLPA less elimination of 25 bp ADMC, provided the property is not in CT/FL/NJ/NY). If one “converted” this up-front fee hike to a per annum charge, this would mean that Fannie would be increasing the per annum cost to this borrower (if the loan were delivered to Fannie) by about 20 bp! Stated another way, the INCREASE in the fee for such a loan scheduled for next year is about what the TOTAL fee Fannie used to charge for such a loan many years ago.

It should be noted that (1) the decision to raise fees in this manner was NOT the decision of the GSEs, but instead was directed by its regulator; and (2) the fee hikes are designed NOT to ensure that the GSEs/taxpayers earn a “fair” return, but rather to encourage a “further return of private capital to the mortgage market.”

CR note: These fees are scheduled to take effect on April 1st. I expect the decision to be reviewed - and hopefully reversed.