Posted September 24, 2012Tweet
Beginning as soon as next week, conforming mortgage applicants will be subject to higher mortgage rates. It's part of the Federal Housing Finance Agency's plan to render Fannie Mae and Freddie Mac less competitive in the marketplace.
Thinking about doing a refinance? Save money by acting now.
When you're shopping for a mortgage, how your loan is structured affects your final mortgage rate. Do you want a 30-year fixed rate mortgage or a 15-year fixed rate one? Do you need a 30-day rate lock or a 45-day rate lock? Is your credit score 740 or is your credit score below 640?
Each of these options helps to set your final mortgage rate and fees.
However, there are other factors in your mortgage rate, too; "behind-the-scenes" costs about which you'd probably never know if it wasn't for some detective work.
One such cost is something called a guarantee fee.
A guarantee fee is a fee charged by Fannie Mae, Freddie Mac and other securitizers of mortgage-backed bonds. Sometimes referred to as "g-fees", guarantee fees help to pay for such mortgage-backed security-related services as the pooling, servicing, and selling of MBS. They're also used in an insurance-like capacity, protecting a mortgage securitizer against credit-related losses in a portfolio.
In general, for each 10 basis points change to g-fees, mortgage rates change 0.125%.
The FHFA reports that, in 2010, the average g-fee was 26 basis points per loan. By 2011, however, that average had climbed to 28 basis points. This means that, last year, on a 3.50 percent mortgage, 0.28% was paid to the mortgage-backer annually, whether it be Fannie Mae or Freddie Mac.
G-fees have been higher in 2012, too -- mostly because of the 2011 U.S. Payroll Tax Extension.
Late last year, Congress extended FICA tax breaks through February 29, 2012 at a cost of $33 billion. To recoup that cost, the nation's lawmakers instructed the FHFA to increase its guarantee fees by 10 basis points for all new mortgages.
Several weeks later, mortgage rates crossed into the 4s. Then, in May, the FHFA made an announcement in which it said that it reserves the right to change its g-fees without notice.
4 months later, it's acting on that right.
Effective for all loans delivered starting November 1, 2012, Fannie Mae- and Freddie Mac-backed mortgages will be subject to an additional 10-basis-point g-fee increase, on average. The FHFA says the move is meant to make government-backed loans less attractive as compared to portfolio loans, and to other private mortgage money.
Another beneficiary will be the FHA. Because the FHA is not raising its g-fees in-kind, FHA mortgage rates will continue to improve as compared to conventional ones. The FHA's share of the purchase money market should improve later this year and into 2013.
The g-fee increase is effective November 1, 2012, but mortgage lenders are already making rate sheet changes. This is because the Fannie Mae and Freddie Mac deadline isn't based on a loan's closing date -- it's based on a loan's delivery date (i.e. the date the loan is purchased by the FHFA).
Working backwards from November 1, therefore : Assuming 30 days to close on a mortgage, and assuming 7 days to prepare a loan for sale to Fannie Mae or Freddie Mac, loans locked after Monday, September 24, 2012 have little chance of avoiding the new g-fee at the time of delivery.
Despite falling mortgage rates, 30-day pricing is about to climb +0.250%.
Once the government's new guarantee fees go into effect, they will be required for all Fannie Mae and Freddie Mac mortgage without exception. Loans locked after the new g-fee rollout must pay the new g-fee. Loans locked prior to rollout will be exempt.
Mortgage rates may fall next week, but rising costs may foil you. If you've been floating a rate, it's time to get locked.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2014 Conforming & FHA Loan Limits
Mortgage loan limits for every U.S. county,
as published by Fannie Mae & Freddie Mac, and the FHA.