Monday, September 19, 2011

Fannie Mae and Freddie Mac raising loan guarantee fees

According to Diana Olick at CNBC, the FHFA Director will raise the loan guarantee fees that both Fannie Mae and Freddie Mac charge.  When a loan is backed by Fannie Mae or Freddie Mac and it defaults, then Fannie or Freddie Mac must compensate the investor that purchase the loan.  If too many loans fail then Fannie and Freddie start losing money and therefore the tax payers lose money, since 79.9% of both companies are owned by the Federal government.  This increase in fees will keep the bill off the taxpayers, so what would happen in 100% privately ran system.

It is believed that both companies will eventually go back to being 100% private.  And the loan guarantee by the US government will decrease or disappear entirety.  This will have the affect of raise the mortgage rates, which is what FHFA is trying to do.

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