FHFA Directs Fannie and Freddie to Keep G-Fees at Current Level and Drop Adverse Market Charge
The Federal Housing Finance Agency (FHFA) announced April 17 that it has determined that the guarantee fees (g-fees) that Fannie Mae and Freddie Mac charge lenders in exchange for insuring single-family mortgage loans should generally stay at their current level. However, the agency directed each firm to make targeted adjustments to its fees, including eliminating the upfront adverse market fee for new single-family loans and increasing the g-fees for loans with secondary financing.
In a Fact Sheet explaining its decision, FHFA says that the current amount of g-fees collected by Fannie Mae and Freddie Mac adequately reflects the cost and risks associated with the firm’s single-family business. As such, FHFA did not find a “compelling economic reason” to adjust the g-fees.
FHFA did, however, order the firms to make certain adjustments to the g-fees that appear designed to help low- and moderate-income borrowers. Specifically, FHFA has ordered Fannie Mae and Freddie Mac to stop charging a 25 basis point upfront adverse market fees for each new loan they insure. These fees were adopted by FHFA in 2008 to account for the increased risk associated with the housing crisis. In the fact sheet, FHFA points to significant improvement in the housing market to justify its decision.
To make up for the revenue lost from removing the adverse market fees, FHFA directed Fannie Mae and Freddie Mac to increase its upfront g-fees by 25 basis points for all loans that have both a loan-to-value (LTV) ratio of 80 percent or less and a credit score of 700 or more. FHFA explains that the purpose of targeting this adjustment is to allow borrowers who cannot afford a 20 percent down payment to benefit fully from the elimination of the adverse market fee.
In addition, FHFA expects Fannie Mae and Freddie Mac to increase the g-fee for jumbo conforming mortgages (over $417,000 in most areas) by 25 basis points. FHFA also established a 37.5 basis point g-fee increase on loans that contain certain attributes the agency has determined are high-risk. Specifically, the increase would apply to all cash-out refinances, loans for investment properties, and loans with simultaneous secondary financing. Fannie Mae has informed NCSHA that the g-fee increase for loans with secondary financing will not apply to loans originated through Fannie Mae’s HFA Preferred products.
FHFA launched its review of the g-fees when it released a Request for Input from stakeholders last June. The request followed up on FHFA Director Mel Watt’s announcement in January 2014 that he would suspend indefinitely g-fee increases that were scheduled to occur. Those g-fee adjustments were put into place by Watt’s predecessor, Ed DeMarco.
NCSHA submitted a letter responding to FHFA’s Request for Input. In its letter, NCSHA urged FHFA to take a balanced approach to setting the g-fees that gives equal consideration to the need to protect Fannie Mae and Freddie Mac’s financial stability and FHFA’s mission to support an efficient and accessible housing finance market. A summary of NCSHA’s comments can be found here.
NCSHA is still reviewing the announcement to determine its impact on HFAs and the affordable housing market. Please reach out to NCSHA with any questions and/or comments you may have.