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Nitty Gritty Details on GSE's Expected Fee Hike and State-Level Changes
As part of the Strategic Plan for the conservatorships, FHFA announced another installment of increased Guarantee fees (“G-Fee”) for Fannie Mae and Freddie Mac today. Given the time that has transpired since the last G-Fee hike (over a year) in conjunction with the agency’s stated goals (and law!) of gradual increases, if anything about it’s timing is surprising, it’s that it did NOT come sooner.</p
(Read More: FHFA Considers Higher Mortgage Fees)</p
The changes take effect beginning on April 1st, 2014 for loans securitized as MBS and on March 1st 2014 for whole loans sold for cash. Vital details are broken down below–essentially all of which were both expected and well-telegraphed </p
(Read More: DeMarco: Guarantee Fees will Continue Gradual Rise).</p
Base (ongoing) G-Fee Changes and Considerations</p<ul
</li
</li
Changes in Risk-Based G-Fee Pricing
</p<ul
</li
Changes in Adverse Market Fee For All but 4 States</p<ul
</li
*In other words, assuming G-fee comes out to 0.5% and servicing to .25%, and assuming a loan at a note rate of 4.5%, we have
4.5 – .5 – .25 = 3.75%
3.75% is the amount of monthly coupon “clip” that would be passed through to the MBS investor, but 3.75% can’t be securitized (because MBS coupons are in 0.5 increments), so we either have to move down to 3.5% or up to 4.0%. Fannie/Freddie grids are like the the rate sheets for determining the price to do either of those things.</p
If you go to 3.5% in this scenario, Fannie/Freddie “buys up” your excess .25% (referred to as “strip”)</p
If you go to 4.0% in this scenario, you have to buydown the G-fee deficiency because if you’re collecting 4.0% on what was supposed to have been 3.75%, Fannie and Freddie are missing out on .25% in interest that would otherwise be going toward their G-fee.
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