Conforming loans just got more expensiveby Tim Manni
The Federal Housing Finance Agency (FHFA) announced on Monday that Fannie and Freddie will change their guarantee fees, or g-fees, in three areas:
- The “base g-fee” for all mortgages will be increased by 10 basis points (0.1 percent)
- The “upfront g-fee grid” will “be updated to better align pricing with the credit risk characteristics of the borrower”
- The “adverse market fee,” which was 25 basis points and added to all Fannie and Freddie mortgages, will be eliminated in every state but four: New York, Florida, New Jersey and Connecticut
What the increases will mean to you
With the increases and decreases combined, the FHFA is anticipating an 11-point g-fee increase. According to an FHA statement, “This represents an average increase of 14 basis points on typical 30-year mortgages and 4 basis points on 15-year mortgages.”
Given these increases, Keith Gumbinger, vice president of HSH.com, believes there could be a shift in which loan products are generally most affordable. “There’s a reasonable chance that conforming loans will be more expensive than jumbo loans. It will have a more pronounced effect on fixed-rate loans,” he says.
“Today’s price changes improve the relationship between g-fees and risk,” said FHFA Acting Director Edward J. DeMarco in a statement. “The new pricing continues the gradual progression towards more market-based prices, closer to the pricing one might expect to see if mortgage credit risk was borne solely by private capital. The price changes provide better protection of and return to taxpayers, who are providing the capital support that keeps these companies operating. These changes should encourage further return of private capital to the mortgage market,” DeMarco said.
The bottom line is that these changes are designed to attract private capital back to the mortgage markets in order to eliminate the dependency on Fannie Mae and Freddie Mac.
“This is yet another acknowledgement that the market is on path to recovery,” says Gumbinger.
The price changes will go into effect beginning March 1, 2014.