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60 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET the latest Watt: FHFa to delay g-Fee Hikes The agency's new direcTor pulls back on a previous announcemenT from edward demarco. W eeks ahead of his swearing-in as director of the Federal Housing Finance Agency (FHFA), Rep. Mel Watt (D-North Carolina) was already making waves with an announcement that he planned to delay an imminent increase in guarantee fees (g-fees). In a statement released late December, Watt—who took the reins at FHFA January 6—said he intends to delay implemen- tation of the agency's recently announced g-fee and risk-based pricing plan for Fannie Mae and Freddie Mac. The plan was first unveiled December 9, one day be- fore the Senate confirmed Watt's nomination to take his post. The fee hikes, originally sched- uled to take place in March and April, called for a base increase of 10 basis points for all mort- gages. The plan also included a larger "adverse market fee" for the states of Florida, New York, New Jersey, and Connecticut, all of which have foreclosure costs that significantly exceed the national average. The increases spelled a likely hike in mortgage rates, causing an outcry from some groups. In his statement, Watt said he wishes to delay the plan "until such time as I have had the op- portunity to evaluate fully the rationale for the plan" and its likely impact on the GSEs' risk exposure. He also said he wants to first determine the likely ef- fect the increase would have on credit cost and availability. Adding that he didn't plan to delve further into the subject until his swearing-in, Watt noted he felt "that it was important to announce my intentions now because of the prospect that some lenders could start to price the announced changes into the market well before the effective dates." Fed decides to scale Back stimulus spending After months of speculation, the Federal open Market Committee hits the switch. i n its final meeting of 2013, the Federal Reserve's Fed- eral Open Market Commit- tee (FOMC) voted to begin dialing back its asset purchase program in January. Pointing to ongoing, stable im- provements in economic activity and labor market conditions since the start of its latest quantitative easing program in September 2012, the committee agreed to scale back its purchase of agency mortgage-backed securities (MBS) to a pace of $35 billion per month; at the same time, pur- chases of Treasury securities will shrink to $40 billion per month. Together, the cuts represent an overall reduction of $10 billion in purchases each month. The decision brings to an end months of speculation over when the Fed might finally decide to pump the brakes on its stimula- tive strategy. Now, the ongoing debate will likely turn to the expected timeline for further cut- backs—probably with little input from the FOMC, which insisted that asset purchases "are not on a preset course." Nine committee members voted for the policy change, including former Fed chair Ben Bernanke and his replacement, Janet Yellen. Voting against it was Boston Fed president Eric S. Rosengren, who said the shift is premature, given the elevated unemployment rate and an infla- tion rate "well below the target." Aside from the headline news, the committee's release largely conveyed the same message as previous announcements. The pace of economic expansion was described as "moderate," and it was noted once again that "[f]is- cal policy is restraining growth," though the FOMC acknowledged this time that the extent of re- straint "may be diminishing." The committee also reaffirmed its plan to move forward with an accommodative stance of monetary policy as long as the unemployment rate remains above 6.5 percent, short-term inflation stays near the 2 percent goal, and long-term inflation expectations "continue to be well anchored." Early reactions to the news indicated the markets—while per- haps surprised—were prepared for an imminent taper. In the initial period following the announce- ment, the Dow Jones Industrial Average climbed more than 200 points, and shares of homebuild- ers D.R. Horton and Lennar gained several percentage points, likely due to a brighter outlook for economic growth this year, said Ruth Mantell, economics reporter for Marketwatch.com.