Last month, July 29, 2014, the Federal Housing Finance Agency, FHFA, announced a deadline extension for input on the guaranteed fees (g-fees) Fannie Mae and Freddie Mac charge to lenders.[1] The new deadline, September 8th, is aligned with the request for input on the draft of private mortgage insurer eligibility requirements.

BACKGROUND

The Enterprises, Fannie Mae and Freddie Mac, charge g-fees to lenders in exchange of mortgage payment insurance (the GSEs foot the bill if a borrower default). G-fees are charged upfront and in an ongoing basis. Upfront fees are one-time payments made by lenders when either of the GSEs acquires a loan, and ongoing fees are charged on a monthly basis during the life of the loan. Generally, the lender converts the g-fees to an ongoing fee which is reflected in the mortgage rate given to the borrower.

Investors of mortgage backed securities, MBS, benefit from these guarantees. However, after the subprime lending crisis, demand for MBSs decreased significantly, and the GSEs themselves faced financial troubles. Today, Congress and government agencies are looking for ways to attract private investors back to the market and create a sustainable housing financing environment.

Increasing the g-fees is part of a strategy that seeks to keep the GSEs solvent while continuing to promote credit access to the public at large.

THE INPUT

FHFAs wants to find out the optimum level of g-fees; what level would protect taxpayers and at the same time, keep credit available to the average borrower.[2]

Through the g-fees, the enterprises cover three types of costs:

1. the costs of defaults
2. creation of reserves to protect against high rate of defaults
3. general and administrative expenses

Of these three costs, the levels of reserves needed to remain financially healthy despite bad credit conditions is the hardest to estimate. (Note that the volume of loans sold by a lender to the Enterprises does not influence g-fees charges to the lender).

THE PROPOSAL

From 2009 through 2013, the g-fees increased by 33 basis points; 22 basis points in 2009 to 55 basis points in 2013.

The changes include:[3]

• an increase of 10-basis points of current g-fees
• adjustment of up-front fee charges to borrowers in different risk categories
• elimination of the 25 basis points Adverse Market Charge for states, with the exceptions of four states

Clearly we will pass the g-fees to the borrower; but the ultimate cost/benefit to us lenders are changes in mortgage applications and purchases.

DO YOU THINK AN INCREASE IN FEES WOULD SIGNIFICANTLY REDUCE MORTGAGE APPLICATIONS?

IS THERE A LEVEL OF G-FEES YOU THINK BALANCES SUSTAINABILITY AND CREDIT AVAILABILITY?

You can submit input on the proposed g-fees structure here: https://www.fhfa.gov/AboutUs/Contact/Pages/Request-for-Information-Form.aspx

1) http://www.infobytesblog.com/comment-period-for-fhfa-g-fee-review-extended/

2) http://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Seeks-Input-on-Fannie-Mae-and-Freddie-Mac-Guarantee-Fees.aspx

3) http://www.fhfa.gov/PolicyProgramsResearch/Policy/Documents/GfeeRFI060514F.pdf

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