Analysts believe that the government may need to charge higher fees to lenders and increase mortgage insurance from borrowers in order to guarantee loans when they go ahead and overhaul Fannie Mae and Freddie Mac – a move that could lead to increased borrowing costs.
The government is trying to boost competitiveness within mortgage markets, and at the same time reduce their expenses over the next ten years by $28 billion.
Currently, government-sponsored enterprises (GSEs) purchase mortgages before packaging them into securities which are sold on to investors. As part of the transaction, GSEs ask for a “guarantee fee”, and this is set to be increased next year.
Such an increase, says the Wall Street Journal, would result in borrowers seeing a modest increase in their monthly repayments. If guarantee fees are increased by just 0.1%, as has been proposed by the government, a $220,000 mortgage’s monthly payments would rise by about 15%.
In order to reduce the risk to taxpayers, Fannie Mae and Freddie Mac would likely ask borrowers to take out additional mortgage insurance, as GSEs have been federally-owned since 2008.
However, any changes would have to be introduced gradually, says Edward DeMarco of the Federal Housing Finance Agency, in order to avoid causing any more harm to fragile housing markets.