Plano Home LoansA recent email from the Mortgage Bankers Association, MBA, noted the resulting increase in mortgage rates will be due to G-Fee increases.

G-Fee?  What the heck is that?

A G-Fee or Guarantee Fee is charged by mortgage-backed securities (MBS) providers, such as Freddie Mac and Fannie Mae, to lenders for bundling, servicing, selling and reporting MBS to investors. The main component of the guarantee fee is charged to protect against credit-related losses in the mortgage portfolio.  These fees are added to the price of a rate in the form of discount points.  So the more discount points you pay, the lower your rate will be.  Discount points are a percentage of the loan amount.

For example, usually a 1 point or 1% charge in discount point will result in a .25 point lower rate.  Let’s say that based on your credit score, loan amount and down payment, you are quoted a 30 year term rate of 4.75% with a charge of 1% of the loan amount OR 5.00% with NO points.  If your loan amount is $200,000, your principal and interest payment will be $1043.29 per month at 4.75% – but will cost you an additional $2000 for closing costs for the 1% charge.  Whereas, at 5% the principal and interest payments will be +$30.35 more or $1073.64 and your closing costs will be $2000 LESS.  It will take you over 65 months or 5 years, 5 months ($30.35/$2000) to realize the Plano Home Loansadvantage of buying the rate lower.

Punitive for borrowers in the heart of the Plano Home purchase market

On December 17th, 2013, the GSEs(Fannie Mae & Freddie Mac) posted the new Loan Level Price Adjustment (LLPA) grids (Fannie’s is here) which call for sharp increases in risk based pricing fees that strike at the core of the mortgage market. Click here for an analysis of the new grid. In fact, the LLPA increases, are most punitive for borrowers in the heart of the home purchase market – those with credit scores between 680 and 760 and making down payments from 5% to as much as 30%. These borrowers will see LLPAs increase from current levels by 0.75 to 1.5 percentage points. As a result, a borrower with a 730 FICO score making a 10% down payment will pay an LLPA of 2.25% for a 30 year fixed rate loan, a full 1.5 percentage points higher than today’s fee. These increases are in addition to the 10 basis point ongoing guarantee fee increase. The estimated net impact on this borrower would be a one-half point or 50 basis point increase in the interest rate costing borrowers thousands over the life of the loan.

Plano Home LoansMBA further states – Taken together, these are ongoing examples of the lack of a coordinated approach to housing policy across the federal financial regulators that, if left unaddressed, could reverse the hard won progress being made in the housing market. In the coming weeks, MBA plans to meet with the new FHFA Director Mel Watt and ask FHFA to suspend the guarantee fee increases and loan limit reductions pending further study of their impact. More importantly, we will ask FHFA to consider alternatives, such as MBA’s up-front risk sharing proposal, which will increase private capital while reducing the cost of G-fees and LLPAs that have become excessive relative to the underlying credit risks in the loan transaction.

Plano Home Loans – UPDATE!

As of December 21st, 2013, Mel Watt, has suspended the most recent change to the Loan Level Pricing Adjustment (LLPA) grids that began to implement last week.  Today, lenders are reverting back to the “old” LLPA grids pending further direction.  What is not clear is whether or not  the 10 BP G-Fee increase is to be rolled back as well.   Most of Washington is closed for the Christmas holiday and our attempts to get clarity on this subject have been unsuccessful so far.

Bottom line – hang on while we go on this wild interest rate ride!

Resources

Guarantee Fees Definition

Why the Recent G-fee Increase?

Fannie Mae Mortgage-Guarantee Fees Increased by U.S.

FHFA Announces Increase in Guarantee Fees

Fannie, Freddie Raises Guarantee Fee Ahead of Mel Watt

Leave a Reply

%d bloggers like this: