Government data indicates that conventional agency originations are becoming too concentrated among a small group of mega-lenders. It also found that 15-year borrowers are subsidizing rates for 30-year borrowers. So higher guarantee fees are being implemented to tackle both of these issues.
An annual report on single-family guarantee fees at Fannie Mae and Freddie Mac released Friday found that average g-fees at the two secondary lenders were 28 basis points during 2011. A year earlier, the average was 26 BPS.
The report, which is required by the Housing and Economic Recovery Act of 2008, also found that higher-risk mortgages are being subsidized by lower-risk loans. It additionally indicated that a majority of loans were being acquired by a small group of large lenders.
“The guarantee fee changes announced today aim to address both issues,” the Federal Housing Finance Agency said in a statement.
The FHFA said it has directed Fannie and Freddie to raise g-fees on single-family mortgages bay an average of 10 BPS.
“The changes to g-fee pricing represent a step toward encouraging greater participation in the mortgage market by private firms, a goal set forth in FHFA’s Strategic Plan for Enterprise Conservatorships,” the regulator stated.
FHFA Acting Director Edward J. DeMarco explained that the new pricing moves the pair of government-controlled enterprises closer to a level that would exist without government assistance.
In addition to moving the pair of secondary lenders more towards private capital market conditions, the changes will make g-fees more uniform between large-volume and low-volume sellers at Fannie and Freddie.
Cross subsidies will be reduced by implementing a larger g-fee increase on loans with maturities longer than 15 years than on shorter-maturity loans.
Interest rates on 15-year mortgages were 73 BPS less than on 30-year loans in Freddie Mac’s Primary Mortgage Market Survey for the week ended Aug. 30.
The g-fee changes are likely to widen the margin between 15- and 30-year loans — making the 15-year mortgage an even more attractive option.
Loans that are exchanged for mortgage-backed securities will be impacted on settlements starting on Dec. 1.
Commitments on loans sold for cash will impacted as of Nov. 1.
