Having found no compelling economic reason to change them, the Federal Housing Finance Agency (FHFA) has decided to leave the guarantee fees (g-fees) charged to mortgage lenders by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac basically the same for another year.
The FHFA, however, is making certain minor changes to the fees that will slightly reduce, maintain, or increase costs for different categories of loans. These include removing the 25 basis point upfront adverse market charge established in 2008 as an on-top pricing increase to reflect the unfavorable condition of the market at the time. In addition, the FHFA is making minor fee adjustments to a subset of enterprise loans that includes certain loans in the GSEs' upfront loan-to-value (LTV) ratio/credit score pricing grid, as well as certain loans with risk-layering attributes (i.e., cash-out refinances, investment properties, loans with secondary financing and jumbo conforming loans).
Seeing as all of the changes are small, the agency does not expect the adjustments to cause any material changes to the GSEs' loan volume in any of the loan categories. What's more, the agency expects the small changes to be revenue neutral.
‘This is the culmination of months of review and analysis and reflects input received from a wide range of stakeholders,’ says Mel Watt, director of the FHFA, in a statement. ‘Our goal is to assure taxpayers, homeowners and industry that we are striving for an appropriate balance between safety and soundness and liquidity in the housing finance market.’
In January 2014, Watt postponed the implementation of g-fee increases that had been previously announced in December 2013 by former director Edward DeMarco, pending further review.
‘The implications for mortgage credit availability and how these changes might interact with the new qualified mortgage standards could be significant,’ Watt said at the time. ‘I want to fully understand these implications before deciding whether to move forward with any adjustments to g-fee pricing.’
G-fee hikes are controversial because some industry experts fear they could sharply increase the upfront fees for borrowers with less-than-perfect credit scores or who cannot make significant down payments. Basically, the FHFA's goal is to provide the optimum level of g-fees required to protect taxpayers while, at the same time, maintaining ample mortgage credit availability.
PMI Eligibility Requirements
In addition to the minor g-fee adjustments, the agency is revising its requirements for private mortgage insurance (PMI) for companies that insure mortgage loans either owned or guaranteed by Fannie Mae and Freddie Mac.
The revised PMI eligibility requirements, effective Dec. 31, set financial and operational standards that private mortgage insurers must meet in order to receive approved insurer status with the GSEs. Basically, the FHFA is altering the financial and operational minimums required of approved providers.
In a release, trade group U.S. Mortgage Insurers (USMI) applauded the FHFA's adjustments to the eligibility requirements, saying, ‘Finalizing the PMIERs is an important milestone for the mortgage insurance industry. Lenders, investors and other mortgage market participants can now have even more confidence in the value and financial strength of mortgage insurance. USMI member companies encourage FHFA to apply these standards to all providers of credit enhancement to the GSEs to ensure our housing system remains strong and stable.
‘With PMIERs finalized, the industry is positioned to be in the forefront of efforts to meet the important goal of putting more private capital at risk ahead of taxpayers, including by providing upfront risk sharing and deeper MI coverage for the GSEs,’ the group's release continues. ‘USMI member companies stand ready to work with the GSEs, lenders and regulators on improving access to credit and homeownership for consumers.’
In a statement, Andrew Bon Salle, executive vice president, single family business, at Fannie Mae says, ‘Mortgage insurance is a critical part of helping families have access to mortgages that they can afford for the long run. We are pleased to finalize these requirements, which will help ensure that our mortgage insurance partners are strong counterparties in the future. The publication of these requirements marks a significant milestone in restoring confidence in the private mortgage insurance industry, and will enhance their key role in providing private capital support for our business.’
‘The requirements announced today are prudent steps to align and strengthen Fannie Mae and Freddie Mac's operational and financial requirements for private mortgage insurance companies, which will reduce the Enterprises' overall risk and protect taxpayers,’ Watt says in a separate statement. ‘Completion of this requirement fulfills a key [FHFA] Scorecard item for the enterprises.’
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