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March 2nd, 2012

Mortgage rates will rise thanks to the G-fee

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6-Fannie-Mae-logoThe FHA’s financial struggles are well documented, and the recently announced increase to the FHA’s mortgage insurance premiums is an attempt to bolster the loan insurer’s depleted reserves.

Fannie Mae and Freddie Mac have also found a way to increase their profits and better shield themselves from risk. The GSEs are raising a mortgage fee you may have never heard of before or even seen before on your Good Faith Estimate or other mortgage documentation. Until now, this “hidden” fee was only really known by those in the industry; it’s called the guarantee fee, or G-fee.

Beginning April 1, lenders will increase the G-fee by 10 basis points on all loans backed by Fannie Mae and Freddie Mac. Many lenders have already begun incorporating the increase into their loans, anticipating the fact that most home loans takes about 60 days to close.  

How much will mortgage rates raise?

In an email to the New York Times’ Vickie Elmer, Keith Gumbinger, vice president of HSH.com, said he expects mortgage rates to increase by about one-eighth of a percentage point. He noted that the increase will mostly be built right into your interest rate, but not always. “While it is most common to build the G-fee into the loan’s rate, it doesn’t have to be done that way,” he wrote, explaining that some lenders might instead charge you a flat fee.

How you can avoid this increase?

Fee increases appear to simply be the reality of today’s mortgage market. However, it doesn’t have to be that way. You can avoid the G-fee increase by borrowing from a smaller, community bank or credit union that won’t sell off the home loans it makes.

Don’t think that the G-fee is something new. It’s not a tax the government instituted after Fannie and Freddie entered conservatorship. The two GSEs have been collecting G-fees since the early 1980s.

They’re only going to keep climbing

“New single-family loans acquired by Fannie Mae were charged a guarantee fee of 31.1 basis points, on average, in the third quarter of 2011, the most recent period for which data are available,” wrote Elmer. “That is six points higher than in the third quarter of 2010. Rates on multifamily loans are 15 to 20 basis points higher than on single-families.”

The bad news for borrowers is that mortgage experts expect gradual increases on home loan fees throughout the coming months and years.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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