On August 31, the Federal Housing Finance Agency (FHFA) announced that it has directed Fannie Mae and Freddie Mac to increase the fees they charge lenders to guarantee loans by an average of 10 basis points (or .1 percentage points). The increase in guarantee fees is part of FHFA’s long-term plan to improve the fiscal health of the GSEs and encourage private firms to increase their participation in the mortgage market.
Fannie Mae and Freddie Mac will increase the base guarantee fees they charge their lenders by 12 basis points for adjustable-rate mortgage loans and fixed-rate mortgage loans with amortization terms greater than 15 years and by six basis points for fixed-rate mortgage loans with amortization terms of 15 years or less. The fee increase will take effect on November 1, 2012 for loans sold to the GSEs for cash and on December 1 for loans exchanged for mortgage-backed securities (MBS). FHFA’s announcement states that the increases will be implemented in such a way so as to narrow the gap between what Fannie Mae and Freddie Mac charge lenders who deliver large volumes of loans and those who originate fewer.
FHFA also said the fee increase is partly intended to address two issues outlined in its annual report on single-family guarantee fees, which was released the same day. According to the report, a large proportion of the loans Fannie Mae and Freddie Mac purchased in 2010 and 2011 were from a small number of large banks, and that the GSEs often use the higher-than expected returns they receive on lower-risk loans to subsidize the guarantee fees on riskier loans. This report, which provides data on loans issued in 2010 and 2011, also found that the average guarantee fee charged by Fannie Mae and Freddie Mac increased from .26 percent to .28 percent from 2010 to 2011.
In the same announcement, FHFA indicated that it would soon seek public input on whether the GSEs should change guarantees fees in each state based on how much risk the firms detect in each state. Lenders in those states that have experienced a high-level of foreclosures would presumably have to pay higher guarantee fees.
Please send any questions or comments to NCSHA’s Greg Zagorski.