News

FHFA Increases Mortgage Fees
Move Will Raise Mortgage Rates.   

 

by Keith Luedeman, CEO   

 

 

News 

09/01/2012 - Fannie Mae, Freddie Mac Guarantee Fees Raised by Regulator
 
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 less. 

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 points.

How Increased GSE Fees Will Raise Rates

• When you get a loan, it's generally put into a Mortgage 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). 
  
• The 30 Basis Points that Fannie Mae received above will be going up to 40 Basis Points. 
 
• 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 http://www.fhfa.gov/webfiles/24259/Gfee083112.pdf

 

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