With an eye to leveling the playing field between Fannie Mae and
Freddie Mac and the private mortgage market, the Federal Housing
Finance Agency has directed the GSEs to hike their guarantee fee,
or "g-fee," beginning in November 2012.
, acting director of the FHFA,
said in a press release
, "These changes will move Fannie Mae and Freddie Mac pricing
closer to the level one might expect to see if mortgage credit risk
was borne solely by private capital."
The g-fee, which is slated to increase by an average of 10 basis
points, is a fee that Fannie and Freddie charge
they buy loans from to securitize. The fee serves to protect the
lenders from credit losses on the loans that go into
What does this mean for mortgage borrowers?
The average g-fee is currently 26 basis points. The increase
could send the fee up to as high as 50 basis points, making for a
maximum hike of 24 basis points, according to Malcolm
Hollensteiner, director of retail lending sales with Cherry Hill,
N.J.-based TD Bank.
"Obviously, if you have a 10 to 24 basis point hike, we would
assume that lenders that are selling their loans to Fannie Mae and
Freddie Mac would have to pass on some of that increase to the
consumer," says Hollensteiner.
The increase won't necessarily translate into an average
mortgage rate increase of 10 basis points, but based on past
experience, Hollensteiner expects that borrowers will end up paying
one-eighth of a percent more on average, either in the form of
higher interest rates or discount fees.
However, there is another factor at work that might serve to
offset the impact of the g-fee hike -- "
." On September 13, the Federal Reserve embarked on the third
installment of their asset-purchase efforts to push long-term
interest rates lower. The aggressive plan is to buy $40 billion in
mortgage-backed securities each month until the economy,
specifically employment, improves.
Keith Gumbinger, vice president of HSH.com, said in an email
that QE3 may have been done in part to anticipate the upcoming
g-fee hike and its potential effect in pushing mortgage rates
"With the Fed a more active buyer (of MBS), they can manipulate
the price in the market so that the new fee has little or no net
effect on the consumer's price. Even though, on an absolute basis,
the cost of mortgage money is higher, it's a matter of 'it would be
higher except for the Fed's influence.' "
Gumbinger expects that there could be downward pressure of as
much as 25 basis points on rates because of QE3. In case
originations slow down to the extent that the Fed controls a larger
share of the market, there could be an even bigger impact on
Credit is more of an issue
For the week ending September 28, HSH.com's weekly mortgage
rates survey found that the average rate on a conforming 30-year
fixed-rate mortgage was down to 3.50 percent. As of Monday, October
1, that average fell to 3.41 percent.
But as Gregg Busch, vice president with First Savings Mortgage
Corp. in McLean, Va., points out, at this point it is not so much
about interest rates as it is about access to lending.
"Until underwriting guidelines loosen up a little bit more, the
housing market will just continue slowly and gradually improving,"
says Busch. "Lenders have tightened up their guidelines
considerably. So right now I don't see 3 percent interest rates
being any better than 3.5 percent because people just can't get
For borrowers who would like to avoid any impact as a result of
the upcoming g-fee hike, one option might be to turn to portfolio
lenders. These lenders, such as banks that don't sell their loans
to Fannie Mae and Freddie Mac, will not be impacted by the g-fee