Fannie Mae and Freddie Mac hiked their guarantee fees in 2010, but the 10 largest seller/servicers to the GSEs continued to pay lower G-fees than their smaller competitors, according to a new report from the Federal Housing Finance Agency.
The report was released a few days after FHFA director Edward DeMarco hinted that come next year he may put an end to g-fee discounts based on residential origination volume.
The Community Mortgage Banking Project, a trade group, and Lender's One, the largest residential finance cooperative in the nation, told National Mortgage News this week that they want an end to the g-fee disparity as soon as possible. The Mortgage Bankers Association declined to comment on the issue of g-fee disparities. (See the Monday edition of NMN.)
Roughly 1,000 mortgage bankers (depositories and nonbanks) are active seller/servicers to Fannie Mae and Freddie Mac.
According to the regulator, the 10 largest customers of Fannie and Freddie paid an average g-fee of 23 basis points in 2010, up 3 bps from 2009. (However, the fee calculation excludes loans bought under the Home Affordable Refinance Program loans, which are addressed separately in the report.)
Fannie and Freddie's customers that are ranked 11 through 90 paid an average g-fee of 27 basis points in 2010 – also up 3bps from the prior year.
The congressionally mandated study notes that the largest lenders generally can negotiate volume discounts as part of secondary market transactions involving the issuance of MBS.
Smaller lenders generally sell their whole loans for cash. “Buying whole loans results in additional costs for the Enterprises,” the report says.
In the report, to avoid disclosure of “protected data,” FHFA officials present their findings regarding Fannie and Freddie on a combined basis.
FHFA noted that the GSEs calculate g-fees on credit scores. Roughly 86% of the loans they purchased in 2010 had a credit score of 720 or higher.
The g-fee on these high quality loans rose 3bps to 22 bps in 2010, while Fannie and Freddie charged 35 bps on loans with 660 to 719 credit scores, up 4 bps, from 2009. Loans with credit scores in the 660 to 719 range accounted for just 13% of the $986 billion of loans the GSEs purchased last year.
Home Affordable Refinance Program is a streamlined refinancing for existing GSE loans with loan-to-value ratios ranging from 80% to 125%.
The report shows the average g-fee on a HARP refinancing is 11 bps higher that the original GSE loan and all upfront fees are capped at 2% of the loan amount. The g-fee on a HARP loan was 32 bps in 2010.
“The enterprises currently expect that the additional fees collected on HARP loans, together with guarantee fees collected on the original loans that are refinanced, will on average cover the projected credit expenses and administrative costs as associated with the mortgages,” FHFA says.
The interest rate on the typical HARP loan is reduced by 100 bps.
HARP loans comprised 11% of GSE loan volume in 2010. FHFA is currently working on making the refinancing program more accessible for underwater borrowers.
