FHFA Releases Data on Single-Family Guarantee Fees
Written By: Joel Palmer, Op-Ed Writer
The Federal Housing Finance Agency (FHFA) released its annual report on single-family guarantee fees charged by Fannie Mae and Freddie Mac.
The report compares year-over-year 2018 to 2017 and provides data over five years.
Details of the report include:
The average single-family guarantee fee in 2018 increased 2 basis points to 55 basis points.
The upfront portion of the guarantee fee, which is based on the credit risk attributes (e.g., loan purpose, loan-to-value ratio, and credit score), was unchanged at 15 basis points.
The ongoing portion of the guarantee fee, which is based on the product type (fixed-rate or adjustable-rate, and loan term), increased 2 basis points to 40 basis points.
The average guarantee fee in 2018 on 30-year fixed-rate loans was unchanged at 56 basis points.
The fee on 15-year fixed-rate loans increased by 1 basis point to 37 basis points.
For adjustable-rate mortgages (ARMs), the fee fell 4 basis points to 54 basis points.
Higher interest rates accompanied by increasing house prices in 2018 led to a smaller share of both rate-term refinances and 15-year loans acquired by Fannie and Freddie. The larger share of purchase loans and a growing focus on pilot programs for first-time homebuyers and affordable housing led to a slight increase in the share of loans with higher loan-to-value (LTV) ratios and lower credit scores.
The average fee for purchase loans was unchanged in 2018. For rate-term and cash-out refinance loans, it increased by 2 basis points and 3 basis points, respectively. The differences were driven by small changes in the loan mix attributes within each group.
The guarantee fee by loan-to-value ratio increased 1 basis point across all four ranges: from 49 to 50 for LTVs 70 and under; from 61 to 62 for LTVs between 70.1 and 80; from 49 to 50 for LTVs between 80.1 and 90; and from 47 to 48 for LTVs above 90. Guarantee fees in the latter two categories have moved the most since 2014. The fee for LTVs above 90 have dropped from 58 to 48. The fees in the 80.1 to 90 range fell from 59 to 50.
The guarantee fees by credit score increased as well. The lowest credit score group (660 and under) rosethree basis points to 81 in 2018.The mid-range group (660- 719) had an increase of 1 basis point to 64. The average guarantee fee for the highest credit score group (720 and above) was 50, 1 basis point higher than in 2017.
Guarantee fees cover the credit risk and other costs the GSEs incur when they acquire single-family loans from lenders. These include projected credit losses from borrower defaults over the life of the loans, administrative costs, and a return on capital.
The following are the main risk characteristics that determine the estimated cost of guaranteeing a single-family loan:
Borrower credit history
Debt-to-income ratio
Loan-to-value ratio
Mortgage insurance coverage
Loan purpose (purchase, rate-term refinance, cash-out refinance)
Occupancy status (primary home, investor) • Property type (single-family, condo/co-op, 2-4 unit)
Product type (fixed or adjustable rate, maturity term)
Target return on capital. The Housing and Economic Recovery Act of 2008 requires FHFA to conduct an ongoing study of the guarantee fees charged by the GSEs and to submit a report to Congress each year.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
