As directed by the Federal Housing Finance Agency (FHFA), the two housing enterprises, Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Federal Home Loan Mortgage Corp (OTCBB:FMCC) will come a little soft on riskier borrowers. The new guidelines direct the two government sponsored enterprises to cut their mortgage fees marginally. Though the move will not benefit low-risk borrowers much but will translate into slight savings for the high-risk borrowers.
Little soft for riskier borrowers
As per the Wall Street Journal, the FHFA’s decision will have little impact on the housing market as a whole. Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddic Mac will offset the cost of reductions by raising fees of other borrowers. Thus, in this way the aggregate change on the revenue of Fannie and Freddie will be neutral.
However, the change in fee structure has not met the expectations of housing advocates, who have been hoping for a higher reduction in borrowing costs from Director, Melvin Watt. At the same time, the cut in the borrowing fees will upset some of the conservatives, who opine that the government is deliberately encouraging riskier borrowers.
Maintaining status quo
Meanwhile, Moody’s chief economist, Mark Zandi said that the cut in fee will have a null effect on the economy and the end borrowers. He added that the move is nothing but a mere indication of maintaining status quo. Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie bundle mortgages into securities and sell them to investors by assuring guarantee in an event of default. In the process, the two housing entities cover their costs by charging fee from lenders, which typically pass it on to the borrowers.
During yesterday’s trade session, the stock of Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) surged by 6.06% to $2.80 while reflecting an average volume of 5 million shares. The stock price retreated by 0.71% during the after-hours.
