A regulatory report indicates that the cost to guarantee an agency loan was up 18 percent last year. Smaller lenders and higher-credit borrowers seem to come up short.
Fannie Mae and Freddie Mac guarantee the payment of principal and interest on their mortgage-backed securities. Both companies charge guarantee fees, or ‘g-fees.’
During 2010, the average fee worked out to 26 basis points, according to the Federal Housing Finance Agency.
It was the third annual such report from the FHFA, which is the regulator and conservator of both companies.
“Those fees cover projected credit losses from borrower defaults over the life of the loans, administrative costs and a return on capital,” according to the regulator.
FHFA was created in the heat of the financial crisis in July 2008 through the Housing and Economic Recovery Act of 2008. Just two months after its creation, Fannie and Freddie were seized in an effort to maintain global confidence in the two company’s bonds — a crucial source of capital for the U.S. housing market.
HERA required FHFA, which also regulates the Federal Home Loan Banks, to study g-fees on residential loans that are not government-insured or -guaranteed.
Last year’s fees were 4 basis points higher than 2009 guarantee fees of 26 BPS.
FHFA noted that loans with lower credit risk funded “cross subsidies” on higher-risk loans. However, the level of cross-subsidization was lower during the two most-recent years than in the previous two.
In addition, sellers with lower volume, on average, paid higher guarantee fees to Fannie and Freddie on loans of similar credit quality than their larger counterparts.
