Fannie Mae shelves plan to increase mortgage fee

WASHINGTON, Oct 2 (Reuters) - Fannie Mae (FNM.N) will scrap its planned-for surcharge in mortgages that it guarantees in some of the weakest U.S. housing markets, the mortgage-finance company said on Thursday.

The Washington-based company had planned to implement the new 0.25 percentage point fee on loans issued on or after November 1 in regions where home values are slipping and defaults are high.

Fannie Mae and its sibling agency Freddie Mac (FRE.N) fell into government hands in early September and the companies have been modifying their business practices in recent weeks with an eye on the health of the housing market rather than their earnings.

The extra fee had been conceived as a way to boost the company's earnings and reserve capital to weather the current downturn.

Eliminating that fee should help lower home borrowing costs for many prospective borrowers.

(Reporting by Patrick Rucker; editing by Diane Craft)