The Federal Housing Finance Agency (FHFA) recently released its annual report on the single-family guarantee fees charged by Fannie Mae and Freddie Mac. The report tracks adjustments from 2009 through 2014 and shows that guarantee fees have increased over this period. The report also reflects the impact of guarantee fee policy changes in previous years and analyzes guarantee fees by product type and volume.
The Housing and Economic Recovery Act of 2008 requires FHFA to submit a report to Congress annually on guarantee fees. Guarantee fees are intended to cover the costs Fannie Mae and Freddie Mac incur for guaranteeing the payment of principal and interest on single-family loans they purchase from mortgage lenders. These costs include projected credit losses from borrower defaults over the life of the loans, administrative costs, and a return on capital.
Overall, the average level of guarantee fees charged has increased since 2009. The guarantee fees are currently two-and-a-half times their previous level; from 2009 to 2014, average fees increased from 22 basis points to 58 basis points.3 From 2013 to 2014, average fees increased from 51 basis points to 58 basis points.
In 2014, primarily because of changes in the models the Enterprises use to estimate the capital necessary to support their mortgage guarantee business, gaps on 30-year fixed rate loans were more negative and gaps on 15-year loans were more positive than in 2013. 4 While the gap on 30-year fixed rate loans was negative relative to targeted return on capital, the returns on capital were positive.
The percentage of loans that the Enterprises purchased from small lenders grew substantially in 2014, while pricing differences between small sellers and large sellers remained small.
View the report here.