FHFA (Federal Housing Financial Agency) recently announced increase in Guaranteed Fees (aka G-Fees) for all Conforming Fannie Mae and Freddie Mac loans originated in California and rest of the country. Let’s try to understand what the G-Fees is and how does it impact you.
G-Fees defined (From Fannie Mae website)
A guaranty fee, also referred to as a “g-fee, is one of the costs reflected in the interest rate on a single-family mortgage loan. This fee represents the charge by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac to guarantee that an investor in that loan will receive all scheduled principal and interest payments until the loan is repaid. The guaranty fee is compensation for assuming all credit losses and costs associated with loans that become delinquent and ultimately go to foreclosure.
Why the increase in G-Fees now:
The G-fees was increased by 10 basis points (bps) in April 2012 and now again in November 2012. The April increase was because of Temporary Payroll Tax Cut Continuation Act of 2011. To help offset the cost of a two month extension of the payroll tax cut, congress mandated this increase. Per FHFA the increase in G-fees for November represents a step toward encouraging greater participation in the mortgage market by private firms, a goal set forth in FHFA’s Strategic Plan for Enterprise Conservator ships.
Impact of Increase in G-Fees for California borrowers:
Borrowers with 30-year, fixed-rate mortgages near the current conforming loan limit of $417,000 can expect to pay more than $8,500 over the life of the loan to fund the 10 basis point fee.
The new 10 basis points increase is for all loans delivered after November 1, 2012. But don’t be surprised if the lenders start to factor that into California mortgage rates a month or two in advance. That means you as the borrower will pay more for getting a mortgage loan.
If you are in the market for Refinancing or buying a home in California, Washington or Oregon – be sure to call me so that I can offer you my expertise and quote you our best rates.