Fannie Mae, Freddie Mac will tack new fee onto home loans next year

Low-credit borrowers aren’t the only people who’ll pay a price for the rising number of mortgage defaults. Ordinary homebuyers will take a hit as well, through higher fees at closing.

Fannie Mae and Freddie Mac, the government-sponsored companies that back 40 percent of American mortgages, have decided to impose a new fee of one-quarter of a percentage point on all loans they buy or guarantee, starting next year.

This seemingly small surcharge works out to about $450 on a mortgage for the full value of a home at Nashville’s median price of $179,900.

The fee will be charged to lenders, but it’s the homebuyer who’ll most likely end up paying it at closing. And it doesn’t matter whether borrowers have good credit or bad. Or if they make a small down payment or a big one. The fee will apply to every mortgage Fannie Mae or Freddie Mac backs.

The companies have another fee schedule planned for risky borrowers, those with credit scores below 680 and who fail to come up with at least 30 percent of the purchase price as a down payment.

Impact spreads

A few hundred dollars won’t cause many people to walk away from a home purchase. But it’s just the latest illustration of how the subprime loan crisis has come to affect nearly everyone in the country. Consider these facts:

• Homebuyers in the Nashville area face tighter lending standards and pay higher fees as underwriters compensate for loan losses in states as far away as California and Arizona.

• Renters see lodging costs rise as borrowers who have defaulted on loans move back into apartments or rental homes, boosting demand for rental space.

• Retailers lower earnings expectations as anxiety over the real estate market threatens to curtail year-end consumer spending and dampen Christmas.

Even the wealthy, those who don’t have to worry about renting an apartment or pinching pennies while shopping for gifts, pay a price. The fallout from the subprime crisis has lowered the value of many Americans’ stock portfolios and battered investment firms that buy mortgages.

All of this explains why policymakers in Washington — congressmen, senators and President Bush himself — are so keen to step up to address the mortgage situation. Even the most cynical politician realizes an issue that affects people’s finances is one they must pay attention to because it holds so much potential to do great damage to the economy.

It is tempting to write bad mortgages off as a problem only for those who hold them. But in our interlocked economy, the crisis should be of interest to everyone.

By CHAS SISK
in The Tennessean 12/17/2007