Rising home prices mean Fannie Mae and Freddie Mac are now backing single-family mortgages of up to nearly $1 million in high cost markets, complicating goals set for the mortgage giants by the Biden administration to help more low-income Americans become homebuyers and address racial homeownership gaps.

The record-breaking 18 percent increase in Fannie and Freddie’s 2022 baseline conforming loan limit, to $647,200 in most areas of the country, means the new ceiling for one-unit properties in high cost areas is $970,800 — far above the national median existing home price of $353,900.

But Fannie and Freddie’s federal regulator has come up with what looks like a clever solution to divert some of its high-balance and second home business to private lenders, while giving first-time homebuyers of modest means a break.

New lender fees taking effect on April 1 for second homes and high balance loans exceeding the $647,200 baseline conforming limit mean that in some cases, it will be cheaper for homebuyers looking for “conforming jumbo” loans to do business with private lenders who fund loans without Fannie and Freddie’s backing.

At the same time, the Federal Housing Finance Agency has ordered Fannie and Freddie to waive guarantee fees on high-balance loans, called loan-level price adjustments, for first-time homebuyers who make no more than the median income in their market.

The “targeted pricing changes” will allow Fannie and Freddie “to better achieve their mission of facilitating equitable and sustainable access to homeownership, while improving their regulatory capital position over time,” FHFA Acting Director Sandra Thompson said in a statement.

Thompson said the fee increases — which won’t apply to Fannie and Freddie programs like HomeReady, Home Possible, HFA Preferred, and HFA Advantage — will strengthen Fannie and Freddie’s safety and soundness and “ensure access to credit for first-time home buyers and low- and moderate-income borrowers.”

Depending on the size of the mortgage and the borrower’s down payment or loan-to-value (LTV) ratio, the changes will mean lender fees will total as much as $40,000 for second homes, $17,000 for high-balance cash-out refinancings, and $9,700 for high-balance purchase loans. That compares to current maximums of $2,400 for second homes and high-balance purchase loans, and $9,708 for high-balance cash-out refinancings.

New fees for second homes and high-balance mortgages

In a note to clients, BTIG analyst Eric Hagen said he thinks the new fee structure could drive more private-label mortgage backed securitizations, in which lenders bundle up mortgages and sell them to investors without guarantees from Fannie and Freddie.

Hagen said Fannie and Freddie’s higher guarantee fees create “an opportunity for bank and non-bank originators to fund those loans at a relatively lower cost through alternative channels, namely private-label securitization,” Seeking Alpha reports.

By raising guarantee fees on second homes and high-balance purchase loans and refinancings, FHFA may ultimately help Fannie and Freddie avoid bumping up against capital requirements that could force them to curtail lending to first-time home buyers and low- and moderate-income borrowers.

The regulator has also proposed changes to Fannie and Freddie’s capital requirements that are designed to encourage them to transfer risk to private investors.

Credit risk transfers, or CRTs, allow Fannie and Freddie to make more loans by distributing risk to private investors. But an analysis by the Urban Institute suggests that the formula proposed by FHFA could force Fannie and Freddie to write less new business, “especially for first-time homebuyers and underserved borrowers, if home price appreciation continues.”

Get Inman’s Extra Credit Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.

Email Matt Carter