Fannie and Freddie Try to Minimize Their Risk in the Housing Market

The two major government mortgage companies … Freddie Mac and Fannie Mae … have announced that they are imposing a new fee to protect themselves from losses on refinanced mortgages. The move is seen as a sign of possible volatility in the housing market.

The Wall Street Journal reports that the lenders said late Wednesday that they would be charging lenders an additional fee each month. The fee will apply to most of the loans purchased by the two government-controlled companies that borrowers have refinanced as interest rates have fallen.

Of course, the fee will be passed along to consumers, according to industry officials. That will increase the cost to homebuyers and refinancers as the Fed aggressively continues to cut interest rates. The increase in the borrowers monthly payments will be small as it will be paid over the life of the loan.

But the fee also comes as Freddie Mac and Fannie Mae are realizing large profits … amounting to $4.33 billion in the second quarter combined.

Fannie and Freddie do not directly make loans to consumers. They buy mortgages from lenders and package them into securities which are sold to investors. They also guarantee that those investors will not lose money on the loans if they go into default.

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