Mortgage Rates remain at historical low levels – leaving many homeowners with the question of “should I refinance my home now or wait and see if rates will go lower?” Some policy changes are on the horizon that will cause an increase in mortgage pricing that will be passed through to homeowners that are refinancing their mortgages to a new loan (and new homebuyers that are purchasing a home).
Bottom line is, the conventional mortgage pricing will be getting worse by approx 50 bps over the coming weeks due to this G-Fee increase. This means that apples to apples, homeowners will pay approximately half a point more in fees for the exact same rate they would get today without the half point.
It has been generally accepted that Freddie and Fannie haven’t been charging enough to guarantee investors (the bond holders) a return of their money. Guarantee Fees (G-Fees) are “fees charged by mortgage-backed securities (MBS) providers, such as Freddie Mac and Fannie Mae, to lenders for bundling, servicing, selling and reporting MBS to investors. The main component of the guarantee fee is charged to protect against credit-related losses in the mortgage portfolio (think of it like MBS insurance), but small sub-fees are also deducted to cover internal expenses for such services as”:
- Managing and administering the securitized mortgage pools
- Selling the MBS to investors
- Reporting to investors and the SEC
- Maintaining the MBS on the open market, and selling, general and administrative expense
“The FHFA has directed both GSEs to increase guaranty fee pricing. In order to comply with this directive, Fannie Mae will increase the base guaranty fees (i) by 12 basis points for adjustable rate mortgage loans and fixed rate mortgage loans with amortization terms greater than 15 years, and (ii) by 6 basis points for fixed rate mortgage loans with amortization terms of 15 years or less. These increases are applicable to loans in MBS pools with issue dates on or after December 1, 2012, and will be added to guaranty fees in effect immediately prior to that. Fannie Mae will also make adjustments to pricing for loans committed on or after November 1, 2012, through its whole loan programs, including eCommittingTM, eCommitONETM, and the Servicing Execution ToolTM (SETTM).”
Due to the pending G-Fee increase, many lenders are beginning to pass through these increases as early as next week. Of course, they all do it slightly different so there will be some large differences between them for a while. Some, for example, will be worsening their 60 day price by 50 bps next week and then their 45 day price will be adjusted a few weeks later and so on.