Fannie Mae and Freddie Mac have made plenty of changes in recent years, causing stirs and keeping the mortgage industry on its toes. This month was no different as the Federal Housing Finance Agency (FHFA) announced last week that Freddie and Fannie would lower guarantee fees starting September 1st, 2015. Their new policy will lower fees for some borrowers and raise them for others. So what does this change mean, and how does it affect borrowers?
An easy way to understand guarantee fees (“gfees”) is to think of them like any other tax placed on goods or services. They are fees charged to lenders for guaranteeing, bundling, servicing, selling, and reporting mortgage-backed securities to investors. The main reason for this fee is to protect against credit-related losses in the mortgage portfolio. Yet the changes in gfees are minor, and may not be even be noticed by borrowers.
Fannie & Freddie also eliminated another fee –– the 25 basis point upfront adverse market charge. Given the improvement in the housing markets, this is understandable. Other small changes will be seen in loans with certain loan-to-value (LTV) ratio/credit scores, and loans with risk-layering attributes (i.e., cash-out refinances, investment properties, loans with secondary financing, and jumbo-conforming loans).
What does all this mean to a borrower? There are so many factors that go into the pricing of a loan that it is impossible to make any consensus. For some borrowers, the cost for a loan may increase while for others it will decrease. It will depend on the LTV, whether or not it is owner-occupied, what the loan purpose is, and more. Yet for some borrowers, there will be no change whatsoever. It truly all depends on each individual case.
Changes aside, mortgage rates continue to be incredibly good. Rates have been low for quite some time but many economists and experts predict they will begin to creep higher later this year. Check with your licensed Loan Officer for more details on rates and prices – the attractive terms may just surprise you.