Homebuyers who have the income to support a loan but do not have 20 percent down are usually required to pay premiums for a policy insuring the mortgage. The Federal Housing Finance Administration (FHFA), the conservator for government-sponsored entities Fannie Mae and Freddie Mac, announced proposed mortgage insurance premium surcharges for five states: Connecticut, New York, New Jersey, Florida, and Illinois. These surcharges will raise the monthly mortgage payments of buyers who receive Fannie Mae or Freddie Mac-backed mortgages (by some estimates adding $30,000 over the life of the mortgages). According to FHFA, it used an formula that purports to take into account the length of time between default and the acquisition of title and its costs in carrying the property, such as property taxes, to justify these surcharges.
The formula is questionable. First, the whole business relies on data generated by Fannie Mae and Freddie Mac, two institutions that were led with such manifest incompetence in their last few years that both of these decades-old institutions crashed and burned. The formula counts the time between the first missed payment and the start of the foreclosure time during which the whole matter is completely within the control of Fannie Mae, Freddie Mac, and its servicers.
