Fannie, Freddie to charge higher mortgage fees (Reuters)

RALEIGH, North Carolina (Reuters) – Fannie Mae and Freddie Mac, the country's two largest mortgage finance providers, are expected to gradually increase the fees they charge lenders in the next year, their federal regulator said on Monday.

The "guarantee fees" that the two government-owned companies charge would be increased in order to lessen the companies' long-term exposure to risk, said Edward DeMarco, acting director of the Federal Housing Finance Agency.

The two firms, which were seized by the government three years ago amid fears they were at risk of failing, do not directly make loans. They provide financing to banks and lenders by purchasing mortgages and either keeping them on their books or packaging them for sale to investors. Those investors pay Fannie and Freddie a "guarantee fee" when they buy mortgages.

An increase in fees would be in line with their regulator's "mandate as conservator and in terms of moving toward something that better reflects a fully private model," DeMarco told reporters after addressing a mortgage conference sponsored by the North Carolina Mortgage Bankers Association.

He said Fannie Mae and Freddie Mac, which have so far cost taxpayers more than $140 billion, should begin "the gradual process of increasing guarantee fees" in 2012.

The White House has backed increasing the guarantee fees as part of way to lessen the government's footprint in the U.S. housing finance system and attract more private capital to the mortgage market.

As part of a new plan to cut budget deficits, President Barack Obama on Monday recommended a 10 basis point increase in the guarantee fees, which would produce projected savings of $28 billion over 10 years.

DeMarco said the changes in guarantee fees that Fannie and Freddie could charge in the coming year may include increased costs for riskier loans and for mortgages in states with more stringent foreclosure laws.

"The loss given default on a mortgage is determined in part on where that mortgage is located in the country," he said.

In October, the first step to lessen the government's backstop for housing will come when the size of the loans Fannie, Freddie and the Federal Housing Administration can purchase fall back to pre-financial crisis levels.

The so-called conforming loan limit caps are set to decline from $729,500 in the highest-priced real estate markets to $625,500 on October 1.

Some fear the new rules could crimp the housing market at a time when it needs help.

"What we don't need right now from Fannie and Freddie is higher fees, what we need from them is to make loans," said Lewis Ranieri, founder and president of Philadelphia-based Ranieri & Co.

"This is when you actually want to be in business, with the lowest rates in history," said Ranieri, who helped develop the model for the private mortgage-backed securities market.

Average rates for 30-year fixed mortgages fell to a record low 4.09 percent last week, according to Freddie Mac data. But with the U.S. jobless rate hovering over 9 percent and consumer confidence slumping, demand for new home loans remains weak.

DeMarco also said the FHFA was still working on making changes to a two-year-old program that allows borrowers to refinance mortgages already owned by Fannie and Freddie. Only 830,000 homeowners have refinanced under the initiative, far fewer than the 5 million the program aimed to reach.

"We're going back through the mechanics about how this works to see whether there are adjustments that can be made," DeMarco said. "This is something that we are looking at."

DeMarco said he is also working with the Obama administration to find the best way to structure a program that would convert foreclosed properties held by Fannie and Freddie into rental homes. The goal is to shrink a glut of foreclosed properties held by the two mortgage finance giants that are weighing down the housing market and hurting home prices.

James Parrott, a senior adviser on the White House National Economic Council, told the conference that it is a "critical time for housing" and the administration needs to continue to work with regulators and the industry "to push in the same direction" on implementing rules that shape mortgage finance.

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Rep. Frank backs higher Fannie, Freddie loan limits (Reuters)

WASHINGTON (Reuters) – Congress should permanently extend increased loan limits on mortgages backed by Fannie Mae and Freddie Mac that are set to expire, the top Democrat of the House Financial Services Committee said on Monday.

"To have no recognition in federal policy of variations in housing prices makes no sense," Democratic Representative Barney Frank of Massachusetts said at the National Press Club. "The same level can't be right for the whole country."

He said the housing market remains fragile, and it would be "an especially bad time economically" for Congress to sidestep taking action on an extension of the October 1 deadline, when the maximum level for loans guaranteed by Fannie and Freddie drops to $625,500.

Congress raised the ceiling on the size of the loans in 2008 to help ease the credit crisis.

The higher limits, which vary by region, currently peak at $729,750 for single family homes in the most expensive parts of the country, except for Alaska and Hawaii, which have higher limits.

(Reporting by Margaret Chadbourn, editing by Dan Grebler)

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Johnson & Johnson leads Dow stocks higher (AP)

By MATTHEW CRAFT and FRANCESCA LEVY, AP Business Writers Matthew Craft And Francesca Levy, Ap Business Writers – Tue Apr 19, 4:46 pm ET

NEW YORK – Strong earnings from Johnson & Johnson helped stocks rebound Tuesday, a day after suffering their worst one-day drop in more than a month.

Johnson & Johnson rose 3.7 percent, leading the 30 companies in the Dow Jones industrial average, with earnings that beat Wall Street's expectations. The health care heavyweight also raised its full-year profit forecast.

Stocks traded in a narrow range throughout the day. Goldman Sachs and other companies reported weak earnings, and worries lingered over a warning from Standard & Poor's about U.S. government debt.

Zions Bancorporation rose 3.9 percent, the most of any company in the Standard & Poor's 500 index. The Utah bank reported a first-quarter profit after posting a loss a year ago. It also said customers were getting better at paying back loans, allowing the bank to set aside less money to cover defaults.

The Commerce Department reported that builders broke ground in March on more new homes than analysts expected. Home construction rose 7.2 percent from February.

The Dow Jones industrial average rose 65.16 points, or 0.5 percent, to close at 12,266.75. The Standard & Poor's 500 index rose 7.48, or 0.6 percent, to 1,312.62. The Nasdaq composite rose 9.59, or 0.4 percent, to 2,744.97.

Major stock indexes posted their largest one-day drop in over a month Monday after S&P said it might lower its rating on U.S. government bonds if Washington failed to tackle its mounting debts. While the rating agency kept its U.S. debt rating at AAA, the highest possible, it warned that there was a one-in-three chance it would downgrade U.S. debt within two years.

U.S. government bonds fared well despite the S&P warning. Bond prices moved higher Monday and again on Tuesday, lowering their yields. The yield on the 10-year Treasury note edged down to 3.37 percent from 3.38 percent.

Economists and bond traders offered a handful of explanations. If S&P's warning prods Congress and the Obama administration to cut budget deficits sooner, it would likely lead to lower economic growth, leading traders to buy bonds.

"If it serves as a catalyst (for long-term debt reduction) then that's a good thing for Treasurys," said George Goncalves, head of U.S. rates strategy at Nomura Securities.

A slower economy would also lead the Federal Reserve to postpone any increases in interest rates, Goldman Sachs economists said in a note to clients. That would be another positive for bonds.

Goncalves said bond traders were more likely to worry about more immediate problems such as the looming fight in Congress over raising the federal debt limit, not the threat of a downgrade from S&P in 2013. "That's so far down the road," he said. "In this market, two years is an eternity."

Among other companies reporting earnings Tuesday, Goldman Sachs said first-quarter income fell 72 percent after it paid $1.64 billion in dividends to Warren Buffett's Berkshire Hathaway Inc. Goldman's stock slipped 1.9 percent.

Trucking company Paccar Inc. rose 4 percent after its income and revenues beat analysts' expectations.

Harley-Davidson Inc. reported that its income more than tripled but missed Wall Street estimates. The motorcycle maker's stock fell 5.3 percent.

United States Steel Corp. rose 4.5 percent after announcing the sale of its 841-foot U.S. Steel Tower, Pittsburgh's tallest building, to a New york-based investment group.

Texas Instruments Inc. fell less than 1 percent. The chip-maker said late Monday that the Japanese earthquake and tsunami set its production back, reducing first-quarter income and likely cutting into second-quarter growth.

After the market closed, Intel Corp. said earnings jumped 29 percent, surpassing estimates. Business spending on new computers offset a design error in one of its chips. Intel rose 6.2 percent in extended trading.

Two shares rose for every one that fell on the New York Stock Exchange. Trading volume was 3.9 billion shares.

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