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Fannie/Freddie sellers paid an average g-fee of 28 basis points in 2011, up 2 bps from the prior year.
In April of this year, the secondary market agencies raised their g-fees by 10 bps as required by Congress to pay for a temporary payroll tax holiday. Revenues from that hike wind up in the U.S. Treasury—not at the GSEs, a fact that has set housing and mortgage groups complaining.
Just under two weeks ago the Federal Housing Finance Agency directed its two mortgage wards to raise their loan guarantee fees by another 10 bps. By yearend, some Fannie and Freddie lenders could be paying 45 bps to 50 bps in g-fees. “This implies a mighty skinny return for the GSE lender,” according to Federal Financial Analytics.
The Washington-based consulting firm notes that FHA lenders pay just 6 bps in guarantee fees to Ginnie Mae when they hold the servicing.
“With the g-fee spread between Ginnie Mae and the GSEs now widening to 42 basis points, lenders will have a compelling fee incentive to send as much high LTV business as they can to FHA,” FFA analysts wrote in a recent report. (The firm specializes in analyzing government policies affecting the banking industry and the secondary market agencies.)
But Ginnie Mae president Ted Tozer doesn’t see it that way. The g-fee on Ginnie Mae MBS is not meant to cover the credit risk on the underlying loans like the Fannie/Freddie g-fee.
In April, the Federal Housing Administration raised it upfront fee to 175 bps and its annual insurance premium to 125 bps for loans with loan-to-value ratios greater than 95%.
“Considering what FHA is charging, I would think it would be pretty comparable to what the GSEs are charging for their guarantee fee plus what the mortgage insurance companies are charging for their monthly premiums,” Tozer told National Mortgage News.
“So I don’t think there is an incentive to shift business,” he added.
Tozer also noted that lenders weigh many factors in determining whether to securitize their loan production though Ginnie or Fannie/Freddie. “There is more to it than just pricing,” he said.
A new report from FHFA also indicates that Fannie and Freddie are not attracting much high LTV business anyway. Excluding HARP refinances, only 4% of Fannie and Freddie loans originated in 2011 had LTVs greater than 90%.
The latest 10-bp hike goes into effect December 1 for GSE lenders that want to exchange single-family loans for guaranteed mortgage-backed securities. For loans sold to Fannie and Freddie for cash, the g-fee increase will go into effect with commitments starting November 1.
FHFA acting director Edward DeMarco views the fee hikes as way to encourage the emergence of a new private-label MBS market.
“These changes will move Fannie Mae and Freddie Mac pricing closer to the level one might expect to see if the mortgage credit risk was borne solely by provide capital,” DeMarco said.
The GSE regulator also directed Fannie and Freddie to make guarantee fees “more uniform” between large and small lenders. The secondary market agencies have a history of charging small lenders higher fees than larger firms. This effort to narrow the gap between large and small lenders began last year.
“As the enterprises renegotiated expiring contracts in 2011, they increased on-going fees more for large-volume lenders,” FHFA says in its annual guarantee fee report to Congress.
The report found the five largest lenders paid on average a 26-bp guarantee fee by yearend 2011, up 5 bps from the first quarter. G-fees paid by the smallest lenders were basically unchanged at 33 bps by yearend.
Also in 2011, g-fees were adjusted for risks based on the maturity of the loans and credit scores.
The g-fee on 30-year fixed rate mortgages rose to 28 bps in 2011, up 3 bps from the year prior. The fees on 15-year FRMs and ARMs were nearly unchanged.
“FHFA will shortly release for public input an approach for developing risk-based pricing at the state level,” the GSE regulator said.
