Guarantee fees drop for mortgages in several riskier categories: FHFA

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Fannie Mae and Freddie Mac charged lenders slightly lower guarantee fees in 2017 for mortgages with riskier characteristics, according to a Federal Housing Finance Agency report.

The average total g-fee in 2017 was unchanged from 2016 at 56 basis points. The upfront portion, which measures risk and includes Fannie Mae's loan level pricing adjustments and Freddie Mac's delivery fees, fell to 15 basis points from 16 basis points. This was a result of FHFA-approved pilot programs that capped the upfront fee to support affordable housing and first-time homebuyer programs.

The report looked at $734 billion of mortgages purchased by the agencies in 2017. The 2016 sample consisted of $897 billion of mortgages.

There was a 4% decline in the share of loans under 70% loan-to-value year-over-year, while there was a 3% increase in mortgages purchased with an LTV over 90%.

Loans in the lowest LTV bucket, under 70%, saw a 1-basis-point increase in the average g-fee charged, to 51. But loans with the highest LTVs, over 90%, also had an average g-fee of 51 and that was down 2 basis points from last year.

For mortgage between 70% and 80% LTV, the g-fee fell 1 basis point to 63, while for loans between 80% and 90% LTV it was unchanged at 53.

By credit score, there was a 4% decline in the share of loans purchased over 720, while a 3% increase between 660 and 720 and a 1% increase under 660. The actual pricing was more in line with the risk. For loans under 660, the g-fee charged fell 5 basis points to 85, while for between 660 and 720, it fell 3 basis points to 65. For loans over 720, it remained at 52.

The ongoing portion of the g-fee, which is based on the loan product type, increased to 41 basis points in 2017 from 40 basis points the prior year as the market share of 30-year fixed-rate mortgages — where the ongoing fee is higher — increased at the expense of the 15-year FRM.

The gap, which measures the g-fee charged versus the estimated cost to Fannie Mae and Freddie Mac, of the loan, was slightly negative for the third year in a row. That means the expected profitability from new loan acquisitions was roughly in line with Fannie Mae and Freddie Mac's targeted return on capital.

By loan purpose, average g-fees for purchases fell 2 basis points to 55, while for rate and term refinancings they were unchanged at 49, and they fell 1 basis point to 67 for cash-out refis.

For cash-out refis, the expected returns are significantly higher than the GSEs' target, while for purchases and rate and term refis they remain below, the report said.

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GSEs Risk management First time home buyers Purchase Affordable housing FHFA Fannie Mae Freddie Mac