As we’ve mentioned in previous posts, there are new fees on the horizon for the vast majority of mortgage loans. When legislators and President Obama agreed upon the temporary, 2-month extension of the Payroll Tax Deduction, they tied the deduction to increased fees collected on mortgage loans that are guaranteed by Fannie Mae, Freddie Mac, and FHA.
The latest update available is beginning to show how the fee will be assessed. Fannie Mae and Freddie Mac have both settled on a 10 basis point increase in Guarantee Fees (also known as “G-fees”). FHA has yet to specify how the increase will be handled for loans that they guarantee.
What does a 10 basis point increase mean?
First, new borrowers will pay for the increase. Existing loans, even those guaranteed by Fannie, Freddie, or the FHA, will not have the fee tacked on retroactively. The timeline for the increase states a start date for collections on April 1, 2012, but that doesn’t mean that all borrowers will have until then to close on a purchase to avoid the fee. The fees charged by Fannie and Freddie will impact all loans that they guarantee on or after that date. However, because of the way the loan guarantee process works, the loans that are guaranteed by Fannie and Freddie on April 1 will have been closed by the consumer and the lender they have chosen as much as three months prior. Thus, as a lender, we anticipate seeing the impact of this fee beginning in the next couple of weeks, if not sooner. Remember, it takes roughly 30-45 days for a typical mortgage loan to close, so loans that we are starting on today may in fact be impacted by the new fee.
Second, a 10 basis point increase can be handled in either the rate or the price. But no matter what, it will impact the borrower. The lender will not absorb these fees, in nearly all instances (Blogger’s Note: I say “nearly” to avoid the use of “always”, which tends to get people into trouble. Most likely, no lender will absorb the fee, but without 100% certainty, I’m stating this small disclaimer). In order for Fannie or Freddie to collect the 10 basis points means that a lender may need to charge as much as 20 basis points if the lender wants to keep the same spread as before.
Normally, we are given warning when fee increases are on the horizon. However, due to the last minute wrangling in the House and Senate over this bill right before Christmas, much was decided and enacted in a very short timeframe. Thus, we were left with very little warning and even at this time, we cannot necessarily close on a loan started today before the new increase takes effect. While this may seem unfair, Fannie and Freddie remind us that they do not need to guarantee any loans and they do so to allow more borrowers to purchase homes. They could decline to guarantee any loans, which would force most borrowers to provide a larger down payment and accept a higher interest rate.
If you have any questions about the g-fee increase, please do not hesitate to contact us at firstname.lastname@example.org or by calling us at 512.328.0400. You may also use the contact form located here to submit your questions.