New Fannie Mae Guarantee Fee Policy Could Raise Mortgage Costs (Again)
As a borrower, the mortgage rate and loan fees you receive from a mortgage bank or broker is based on a series of inputs including loan type, days until closing, and credit risk.
There are also mandatory, "behind-the-scenes" fees that you never see but that are factored into your loan price nonetheless.
One such fee is the Guarantee Fee.
A guarantee fee is a fee charged by Fannie Mae, Freddie Mac and other securitizers of mortgage-backed bonds. "G-fees" are fees for such MBS services as pooling, servicing, and selling mortgage-backed bonds. G-fees also are used in an insurance-like capacity, protecting against credit-related losses in a portfolio.
This is why news from Fannie Mae this week turned some heads.
Fannie just announced a new policy that gives it the ability to change guarantee fees at-will, with little or no notice. This might not seem like a big deal, but remember these two things :
- A mortgage applicant typically agrees to pay a certain set fees at the time a mortgage rate is locked
- A mortgage lender may not sell a loan to Fannie Mae for up to 60 days after a mortgage rate is locked
Therefore, to lenders with large pipelines of unsold loans, Fannie Mae's new policy represents a tremendous risk. By law, banks are bound to honor a customer's Good Faith Estimate. If G-fees rise on loans-in-process, banks could be on the hook.
The exact verbiage for its announcement stated "Fannie Mae may change the base guaranty fee, loan-level price adjustments (LLPAs), and/or guaranty fee adjustments for MBS Express or rapid payment method remittance cycles ('Pricing') applicable to mortgages delivered under MBS contracts or as whole loans as follows: Fannie Mae reserves the right to change the Pricing one or more times during the term of any Master Agreement or related MBS contract at any time."
Like for all new loan risks, expect lenders to adjust their pricing models accordingly.
Lenders will not absorb these new costs. Expect them to be passed on the consumers, or even to the non-home-buying public at-large. Earlier this year, you'll remember, Congress has Fannie Mae and Freddie Mac increase g-fees for 10 years to cover the cost of the two-month payroll tax exemption.
Freddie Mac has not made a similar announcement, but the industry expects one shortly.