09/01/2012 - Fannie Mae, Freddie Mac Guarantee Fees Raised
Fannie Mae and Freddie Mac, the U.S.-owned mortgage-finance
companies, will raise by an average of 10 basis points the fees they
charge lenders to guarantee loans, the Federal Housing Finance
Agency (FHFA) said in a statement. Specifically, Fannie Mae
will increase the base guaranty fees (i) by 12 basis points for
adjustable rate mortgage loans and fixed rate mortgage loans with
amortization terms greater than 15 years, and (ii) by 6 basis points
for fixed rate mortgage loans with amortization terms of 15 years or
FHFA Acting Director Edward J. DeMarco sought the fee increase to
boost fiscal stability at the government-sponsored enterprises and
shrink their footprint in the mortgage market, where they own or
guarantee about 60 percent of U.S. home loans.
An increase of 10 basis points would cost a borrower with a $200,000
mortgage about $4,000 over a 30-year loan term.
FHFA, which has overseen Fannie Mae (FNMA) and Freddie Mac since
they were seized by regulators in 2008, has been planning since last
year to raise fees charged for guaranteeing principal and interest,
a system designed to boost lending and homeownership.
This fee increases will also encourage private investors to re-enter
the Mortgage Backed Security (MBS) Market by raising the prices the
Agencies pay for loans, thus making room for private industry to
make a profit. This move should, over time, re-energize the
private MBS Market, which has been largely dormant since the
mortgage market meltdown.
This is for all new mortgages that are written to Fannie Mae, Freddie Mac,
FHA or VA guidelines, either
for a new home purchase or a refinance. Currently Fannie
and Freddie, FHA and VA loans are a vast majority of all new home loans.
Note: For your existing home mortgage - nothing will change in terms of
this fee or additional payment, as this is for new loans only.
The fee increase will begin Nov. 1 for loans sold for cash and Dec.
1 for loans exchanged for mortgage-backed securities, FHFA said.
However since lenders have to make the loans now for those pools,
the price increase will be almost immediate.
Fannie Mae and Freddie Mac have taken almost $190 billion in U.S.
aid since they were placed under conservatorship in September 2008
after losses on investments in risky loans pushed them to the brink
of insolvency. The companies have paid about $46 billion in the form
of dividends on the government’s nearly 80 percent stakes in each of
them. In future quarters, the companies will turn over all profits
to the Treasury instead of paying dividends, FHFA said this month.
The last guarantee-fee increase took effect in April after Congress
boosted them by 10 basis points to fund a payroll tax cut. It was
the first time fee proceeds had been diverted into the U.S. Treasury
instead of helping offset the risk borne by Washington-based Fannie
Mae and Freddie Mac (FMCC) of McLean, Virginia.
The average guarantee fee charged by the two companies rose to 28
basis points in 2011 from 26 basis points in 2010, according to a
report FHFA also released yesterday. By the end of the year, after
both increases are in effect, fees could average about 48 basis
How Increased GSE Fees Will Raise Rates
you get a loan, it's generally put into a
Backed Security. The bondholder receives a portion of your
payment, and the servicer and Government Sponsored Entity (Fannie
Mae is a GSE) also have some fees.
• For example, if you obtain a mortgage at 4%, the mortgage will be
put into a 3.5% Mortgage Backed Security. The remaining .5%
(or 50 Basis Points) will be split as follows - Fannie Mae or
another GSE would
receive 30 Basis Points and the servicer would receive 20 Basis
Points. This is how the servicer funds the
servicing of your loan (which includes coupon books, tracking late
payments, distributing escrow funds for taxes and insurance,
payments to bond holders, customer service, and foreclosure if you don't pay).
30 Basis Points that Fannie Mae received above will be going up to 40
• This 10 Basis Point addition means your
rate will be 10 Basis Points higher - which is about 1/8th of a
point. On a $200,000 mortgage, that's about $15 a month.
What is Happening Now
• This increase is for mortgage loans put
into Mortgage Backed Securities as of December 1, 2012.
However, that means loans closing after about October 10th, 2012 are put into these
Securities as it takes about 45 days for your closed loan to be
routed into one of these Mortgage Backed Security packages.
Keep in mind even the largest banks put loans into Mortgage Backed
Securities, though they make keep the servicing of the loan.
• If your rate is currently locked,
make sure you close on time, or you will have larger than normal
extension cost. These lock extension costs could be up to 50
Basis Points (1/2 point) which is about the amount it takes to buy
down a rate by 1/8th of a percent (.125%).
• If you are considering refinancing, you may see a slight jump in
rates as you go to lock in. All lenders are on a level playing
field, so it won't make a difference which mortgage lender you use
for your new mortgage loan, as the largest banks to the smaller
mortgage lenders will pass along this fee.
For the full statement - see