Two key government-related mortgage investors, Fannie Mae and Freddie Mac, were generally able to maintain their pricing for loans bought during the pandemic’s turbulent first year, even with additional adverse market and forbearance fees in place.
The two companies on average charged 54 basis points to lenders in 2020 as a means of covering the risk and costs involved in buying single-family loans they guarantee, according to a Dec. 21 report by the Federal Housing Finance Agency. That number was down from 56 a year earlier due to a 2-basis-point decrease in the upfront portion of the fee pegged to credit risk. That part of the fee averaged 11 basis points in 2020. It also had fallen by 2 basis points in 2019. In contrast, the ongoing portion of the guarantee fee, which varies by product type, remained unchanged, at an average of 43 basis points in 2020. It had risen by 3 basis points in 2019.
Although g-fees on average in 2020 were generally little changed or lower, those charged for loans with a few specific characteristics did rise slightly.
G-fees for loans with 80.1 to 90% LTVs increased by a basis point to 54 during 2020. But that marked less of an annual increase than in 2019. That year, guarantee fees for loans in this category rose by 3 basis points on average. In contrast, 2020’s increase in g-fees for loans with LTVs above 90% to 54 basis points was consistent with the 3-basis-point rise the previous year.
Because the government-sponsored enterprises aim to support borrowers with lower incomes, guarantee fees for higher-LTV loans remained lower than for more traditional financing for those who can afford a 20% to 29% down payment (61 basis points, down from 63 the previous year).
Other increases seen in 2020 included a 2-basis-point jump in the charge for purchase loans. This rose to 56, in line with the previous increase in that category during 2019.
Another loan product with higher average fees in 2020 was the adjustable-rate mortgage. G-fees for these loans, which were not broadly originated last year, rose 1 basis point to 57. In comparison, the average charge for loans in this category had risen 2 basis points the previous year.
Interestingly, despite the fact that a 50-basis-point fee was instituted on refinance loans to address adverse market conditions in December of 2020, the average annual charge for these mortgages remained unchanged for rate-and-term products, at 49 basis points. It also dropped by 2 basis points to 66 for cash-outs. (Thompson discontinued this fee on Aug. 1, 2021.)
What happens to guarantee fees going forward depends in part on how proposals related to the GSEs’ capital requirements and planning pan out. Return on capital, administrative costs and projected credit losses over the life of the loan are among the considerations in setting g-fees.
Guarantee fees may also increase if they are tapped to fund more legislative initiatives. Last month, the Infrastructure Investment and Jobs Act extended an existing 10-basis-point fee lenders are charged on an ongoing basis for that purpose to 2032. Originally put in place through the Temporary Payroll Tax Cut Continuation Act of 2011, that charge previously had been due to expire in 2022.