UPDATE 2-New FHFA chief reverses course on Fannie, Freddie loan-fee hikes

Wed Jan 8, 2014 12:12pm EST

* Halting fee increase is Watt's first policy action

* Planned hike was meant to shrink government housing role

* Watt signals concern on credit availability

By Margaret Chadbourn

WASHINGTON, Jan 8 (Reuters) - The U.S. regulator for Fannie Mae and Freddie Mac on Wednesday instructed the two taxpayer-owned mortgage finance companies to halt a planned increase in fees on loans they back, saying it could hurt borrowers.

Mel Watt, who was sworn in as director of the Federal Housing Finance Agency on Monday, said he would set aside the price changes, which were just announced last month, to allow for further study of the potential impact.

"The implications for mortgage credit availability and how these changes might interact with the new ... mortgage standards could be significant," Watt said. "I want to fully understand these implications before deciding whether to move forward with any adjustments."

Fannie Mae and Freddie Mac were scheduled to increase the fees they charge lenders for guaranteeing mortgages this year. The fees often trickle down to borrowers and result in higher mortgage rates.

In his fist policy decision as FHFA director, Watt is signaling that maintaining borrowers' access to mortgage credit is a high priority. Many consumer and housing industry groups opposed the original fee increases when Watt's predecessor, Edward DeMarco, announced them.

They were meant to shrink the government's presence in the mortgage market by improving the competitiveness of loans that are not backed by Fannie Mae or Freddie Mac. DeMarco unveiled them a day ahead of Watt's Senate confirmation vote in December.

The announcement from Watt does not come as a surprise. In an unusual move, he told reporters last month that he intended to consider a policy reversal once taking office.

Fannie Mae and Freddie Mac, which back about 60 percent of U.S. home loans, buy mortgages from lenders and package them into securities on which they guarantee payments of principal and interest. In doing so, they serve as major sources of funding for hundreds of banks.

The FHFA said it would provide at least 120 days notice after completing the study before making final changes.

The guarantee fees were scheduled to rise an average of 14 basis points on typical 30-year fixed-rate mortgages, the regulator said when it announced the changes in December.

Pete Mills, senior vice president of residential policy at the Mortgage Bankers Association, said the fee increases would have hurt borrowers and were unlikely to accomplish the FHFA's goal of attracting more private investment in housing.

"These efforts (by the FHFA) to crowd in private capital haven't been successful to date," Mills said. "Watt has made a significant policy change."

Used to offset risks, the fees also provide a source of revenue for Fannie Mae and Freddie Mac. Fannie Mae, for instance, made $7.6 billion in single-family guarantee-fee income in 2013, according to its quarterly financial statements.

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