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.
Ed DeMarco, 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 mortgage lenders they buy loans from to securitize. The fee serves to protect the lenders from credit losses on the loans that go into mortgage-backed securities.
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.