Mortgage rates get a break from incoming housing regulator
The nation's largest mortgage lenders are rushing to keep up with the latest flip-flop from the agency that oversees mortgage giants Fannie Mae and Freddie Mac, the Federal Housing Finance Agency.
In an oddly timed email sent to a handful of reporters late Friday, Rep. Mel Watt, D-N.C.—who has been confirmed as the new head of the FHFA but not yet sworn in—made a major announcement that will directly affect mortgage rates. He said he would delay a decision made by current acting director, Ed DeMarco, to hike fees charged to lenders by Fannie and Freddie.
"I felt that it was important to announce my intentions now because of the prospect that some lenders could start to price the announced changes into the market well before the effective dates of the changes outlined in the FHFA's December 9, 2013 News Release," Watt wrote in the email sent from his personal account.
The "prospect" was already a reality. Earlier Friday, Citi put out a note saying it would change its pricing structure as of February. A spokesperson from JP Morgan Chase also said Friday: "We did adjust pricing in our correspondent channel only, given the longer cycle time."
Correspondent lending is when smaller lenders sell their newly originated loans to Chase and then Chase sells them to Fannie Mae or Freddie Mac; that process takes longer. As of Monday morning, Chase is now reversing the price hike.
"We will not put in fees that don't exist. They will come out where they are in, and won't be applied to the other channels," said the spokesperson.
The fees, both general and new risk-based fees and announced by DeMarco earlier, could have raised interest rates by up to three quarters of a percentage point.
After the DeMarco announcement, mortgage lobbyists hit Watt hard, and were apparently successful. Given the implementation of new mortgage rules from the Consumer Financial Protection Bureau going into effect in January and the new lower loan limits at the Federal Housing Administration (FHA) and other mortgage banking regulations still being discussed, the higher fees were just too much for the industry, and the industry let Watt know.
"There's too much uncertainty in the market to implement a radical policy that has no rational basis to it," said David Stevens, CEO of the Mortgage Bankers Association. "My own estimation is that it would be highly unlikely he [Watt] would implement fees so radical as the ones proposed."
The fees were an additional weight in a mortgage market that is already bracing for higher rates, given the Federal Reserve's decision to pull out slowly from the bond market.
"Keeping these fees from rising removes a potential negative from housing, which is broadly helpful to originators, home builders, and mortgage insurers," Jaret Seiberg of Guggenheim Partners wrote in a note Monday. "It does nothing, however, to expand mortgage credit availability. And our view remains that excessively tight underwriting standards will keep the housing recovery from being as robust as it should be."
—By CNBC's Diana Olick. Follow her on Twitter @Diana_Olick.