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Fannie Mae and Freddie Mac Pricing Changes Due to G-Fee Increase

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CAPITAL MARKETS

January 2012
Fannie Mae and Freddie Mac Pricing Changes due to Guarantee Fee Increase

As you probably have gathered from the notices you have recently received from other wholesale lenders, investors have immediately implemented the increase in the Fannie Mae and Freddie Mac guarantee fee. We apologize and wish we could have given you more notice. The following schedule illustrates the timing of guarantee fee increase on 45, 30 and 15 day locks.


Lock Period

Price Change effective Date

45 days                                         1/11/2012
30 days                                         1/18/2012
15 days                                          1/23/2012

In addition, we need to temporarily adjust our lock extension and relock fees. Again, this is temporary until the new guarantee fee is completely absorbed. The following schedule illustrates the cost and timing of the our temporary relock and extension policies;


Expiration Date

Additional Extension/Relock Fee

Prior to 2/10/12 0                                                 0
After 2/10/12 50 bps                                         50 bps

As you will see, our pricing, relock and extension fee changes are consistent and in line with what you will see from other lenders.

The following are some FAQ’s that might help explain this:

Why is this occurring?
As directed by the Federal Housing Finance Agency (FHFA), pursuant to the Temporary Payroll Tax Cut continuation Act of 2001, Fannie Mae and Freddie Mac are required to increase the guarantee fee charged for all mortgages delivered on or after April 1, 2012 by 10 basis points. In the next few months, FHFA will further analyze whether additional guarantee fee increases are appropriate to ensure the new requirements of the law are being met.

What is a guarantee fee?
It is a fee charged by mortgage-backed securities (MBS) providers such as Fannie Mae and Freddie Mac, to lenders for bundling, servicing, selling and reporting MBS to investors. The main component of the guarantee fee is charged to protect against credit-related losses in the mortgage portfolio. Think of it as insurance. Commonly known in the mortgage industry as “g-fee”, this is a deduction in relation to the interest rate.

How does a 10 basis points increase in guarantee fee impact my borrower?
A 10 bp increase in g-fee effectively raises the interest rate to the borrower by 12.5 basis points. A 12.5 bp increase in rate generally translates to a 50 bp increase in fee or a 50 bp reduction in rebate. Since all investors have already implemented this increase in their respective pricing structures, you will be seeing the effect of this increase in the rate sheets published by all lenders.

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