In a recent announcement, Fannie Mae and Freddie Mac (the GSEs) announced that they will be increasing their guarantee fees for 2022. This increase is due to a number of factors, including the rising cost of mortgage insurance and the changing mix of products that the GSEs are guaranteeing.
The Guarantee Fee
The guarantee fee is a fee that the GSEs charge lenders for guaranteeing their mortgages. The fee is used to cover the cost of the GSEs’ default insurance fund, which is used to pay off investors if a borrower defaults on their mortgage.
The guarantee fee is calculated as a percentage of the loan amount. For most loans, the guarantee fee is 0.5%. However, the fee can be higher for certain types of loans, such as loans with low down payments or loans to borrowers with poor credit.
The Increase
The GSEs have announced that they will be increasing their guarantee fee from 0.5% to 0.6% for most loans. This increase is effective for all loans that are originated on or after January 1, 2022.
The increase in the guarantee fee is due to a number of factors, including:
* The rising cost of mortgage insurance.
* The changing mix of products that the GSEs are guaranteeing.
* The need to maintain the financial stability of the GSEs.
The Impact of the Increase
The increase in the guarantee fee will have a number of impacts on borrowers and lenders.
For borrowers, the increase in the guarantee fee will likely lead to higher mortgage rates. This is because lenders will pass on the cost of the increased guarantee fee to borrowers in the form of higher interest rates.
For lenders, the increase in the guarantee fee will likely lead to decreased profitability. This is because the increased guarantee fee will reduce the amount of profit that lenders make on each loan.
Conclusion
The increase in the GSE guarantee fee is a significant change that will have a number of impacts on borrowers and lenders. Borrowers should expect to pay higher mortgage rates, while lenders should expect to see decreased profitability.
Kind regards
J. Ross.
