Mortgage Guarantee Fee Rises Because of Fannie and Freddie

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December 12, 2013 — 1,065 views  

Fannie Mae and Freddie Mac have decided to hike the mortgage guarantee fee by 0.1%. The two government funded agencies have decided to increase the fee charged for guaranteeing of mortgages. This has been done to bring stability to the housing market and to encourage private financiers and lenders to enter the market.

Background Details

FNMA and FDMC are two state owned corporations that were created by the US government to ensure that affordable housing is available to the average American. They are colloquially known as Fannie and Freddie. They are tasked with providing loans and assisting Americans in their purchase of a home. They both receive billions of dollars of funds from the US government.

The mortgage guarantee fee is a fee that is charged by banks to customers. The purpose of the fee is to pay for the guaranteed sale of a mortgage which the buyer wants. The fee is important because the bank is taking the risk of the resale value of the house upon itself.

The fee is to be hiked by 0.1%, which is one-tenth of a basis point. The hike will be in effect in all states except for four states in which it was already hiked.

Expected Impact

The hike could make buying a house more expensive for most Americans. And, in any case, the recent economic downturn has already taken its toll on the savings and earnings of most Americans. The unemployment rate has also shot up. Many Americans are choosing to postpone their purchase of a house. Many have even gone back to living with their parents.

The economic downturn has also caused the prices of most houses to fall and many houses are yet to find any buyers. This is one of the reasons why the mortgage guarantee fee has been hiked.

Conclusion

The hike in the mortgage guarantee fee by Fannie and Freddie is a part of a larger move to stabilize the American housing market. The market is slowing down and will need more time to cool down. The hike in the fee will make buying a house harder, but it will also make buying a house a safer investment. It will likely attract more banks to finance the purchase of houses. This will ease the credit crunch that had hit the housing market a few years ago. In the long run, a revival of the housing market could be good for the American economy as well.

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