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Mortgages to Get a Little More Expensive – Fannie, Freddie to Raise Fees
Just a quick update here, but it looks like most mortgages (those ultimately purchased by Fannie Mae or Freddie Mac, which is the vast-majority of non-jumbo mortgages) will get a little more expensive next year. The Federal Housing Finance Agency (FHFA), the conservator for Fannie and Freddie issued a press release this morning stating that guarantee fees will increase by 10 basis points in November or December.
Guarantee fees (or g-fees) are fees that Fannie and Freddie charge largely in order to protect against losses stemming from defaults. Studies found that the credit risk on higher-risk mortgages was subsidized by lower-risk loans. The increase would “reduce the cross-subsidies” and “make more uniform g-fees that Fannie Mae and Freddie Mac charge lenders who deliver large volumes of loans as compared to those who deliver smaller volumes.” This is probably not especially important to the consumer, what is important is that the cost of a mortgage will increase incrementally for many people.
Another, somewhat more interesting development is only mentioned in one throwaway line at the end of the press release: “FHFA shortly will release for public input an approach to developing risk-based pricing at the state level.” Although it isn’t clear exactly how these state-based risk fees would work, I imagine it would be linked to default rates in a given area. If that were the case, I could see somewhat larger increases in mortgage rates in some states, and that could have fairly sweeping ramifications. We’ll have to see where that goes.
G-fees were increased earlier in the year in order to offset the costs of a temporary extension of a payroll tax cut. And yes, those two things are entirely unrelated.
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2012-09-10 02:04:59
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