Fannie Mae Raises Fees, Changes Loan-Level Pricing

(update 1: added color on Fannie’s loan level pricing) Likely looking to build its capital base, Fannie Mae (FNM) on Monday announced that it was doubling its so-called adverse market delivery charge on all loans it purchases from 25 to 50 basis points — a fee that HW’s sources said is likely to be passed on to consumers by already-strapped lenders, with some caveats. The new fee structure will become effective October 1, and applies to all loans sold to the GSE. Fannie’s adverse market fee, and a similar fee levied by sister GSE Freddie Mac (FRE) (called a market condition delivery fee), have come under fire from various industry groups since they were first introduced last year. HW reported on the initial introduction of the fees last December, and at the time, National Association of Home Builders executive vice president and CEO Jerry Howard characterized the fees as a “broad tax on homeownership.” Likewise, Mortgage Bankers Association chairman Kieran Quinn said he was “deeply concerned that these new fees have the potential to limit homeownership prospects for affected borrowers.” Neither organization had commented on Fannie’s decision to double such fees in the face of investor and market unrest by the time this story was published. New loan-level pricing adjustments Fannie also updated loan-level price adjustments for its flow purchase business, introducing LLPA credits for certain mortgage loans with credit scores of 720 and greater and loan-to-value ratios above 85 percent, and decreasing LLPAs for loans with credit scores above 620 and the same LTV levels — the changes suggest that Fannie sees these loans as less costly from a credit perspective. “By ramping up adverse market fees by 25 basis points for all borrowers, and then crediting LLPAs 25 basis points for some subset of borrowers, the effect of Fannie’s change is a net wash,” said one source, an analyst that asked not to be identified by name. “At least, for that subset only.” Sources suggested, however, it was strange to see low-equity loans get a 25 basis point pricing credit, while loans between the 60 and 85 percent LTV received no such favorable treatment from the GSE — in fact, depending on credit strata, some loans in this lower LTV range actually saw LLPAs increased. “It may be a reflection of the current market dynamic,” said the analyst that spoke with us, “but it’s certainly odd to see pricing adjustments favor higher LTV loans.” Another source said the pricing changes were made because the GSE is pushing the decision-making power and authority for low-equity loans directly into insurers’ collective laps. “High LTVs are getting ‘lower’ fees because Fannie is ready to double down on PMIs,” said the source, via email. Freddie Mac had not yet followed suit, but market sources suggested the GSE would soon hike its own fees in response to the move by Fannie Mae. For more information, visit http://www.fanniemae.com. Related links: Fannie Mae Lender Announcement 08-18 Disclosure: The author was long FRE and held no positions in FNM when this story was published; indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.