Earlier this week we learned that Fannie Mae (and Freddie Mac) plan on increasing their Loan Level Pricing Adjustments (LLPA) beginning April Fool’s Day 2014. This will, without doubt, impact interest rates for loans to those with even the most pristine credit. My friends at The National Real Estate Post put out a layman’s article that sums it up for us – thank you Frank & Brian!
What is a G-Fee increase, and will we see one?
The FHFA (Federal Housing Finance Agency), the agency that oversees FNMA (Fannie Mae) and FHLMC (Freddie Mac) while they are under conservatorship, recently gave a directive for the agencies to increase their guarantee fees, or “g-fees”. What does this mean to you?
What is a G-Fee?
The guarantee fee is is a fee charged by FNMA and FHLMC to lenders for bundling, servicing, selling, and reporting MBS (mortgage-backed securities) to investors. The fee is supposed to protect against credit related losses in the mortgage portfolio, as well as to allow the agencies to make a profit.
Why is the G-Fee being increased?
The g-fee is being increased to improve the bottom line at the agencies, as well as to encourage private firms to increase participation in the mortgage MBS market. You can read the 2 page press release HERE (direct link: http://goo.gl/HZUXUB )
What does this do to mortgage rates?
A g-fee increase will cause mortgage rates to go up. In the case of the most recent g-fee increase of 10 basis points, rates would go up about .125%.
When will this take effect?
It was supposed to take effect for March, which actually means loans being originated in January would feel the effects (because those loans would be delivered to the agencies in March). However according to an article in the Wall Street Journal, the incoming director of the FHFA, Mel Watts, will announce that he will delay implementation of the fee increase. Mr. Watts will be sworn in as director on January 6th. Check out the article HERE (direct link: http://goo.gl/oedI5t )