GSE Fee Changes Too Small to Notice?

Changes to Fannie Mae and Freddie Mac’s fee structure were announced by thernFederal Housing Finance Agency (FHFA) on Friday.  But in the words of The Wall Street Journal, “the changes are so small that fewrnborrowers will notice.”</p

Modifications to the Loan Level Price Adjustments (LLPA) will result mainlyrnin slightly lower fees to borrowers with weaker credit.  FHFA said it was directing the governmentrnsponsored enterprises (GSEs) to eliminate the 25 basis point adverse market feernthey implemented in March 2008 and replace if “with targeted increases inrnguarantee fees to address various risk-based and access-to-creditrnconsiderations.”</p

Those “targeted increases” will be a 25 basis point increases in fees forrnborrowers with credit scores above 700 and loan-to-value (LTV) ratios under 80rnpercent. Thus those borrowers will see zero net change in fees. The 25 basisrnpoint increase will also apply to mortgages over $417,000 and a 37.5 basisrnpoint increase will apply to some higher-risk loans.  Borrowers with credit scores below 700 or LTVrnratios over 80 percent will not be charged these higher fees, resulting in arnnet reduction in their borrowing costs of 25 basis points. </p

Here is a simplified chart of the changes accounting for the removal of the Adverse Market Delivery Charge (AMDC).</p

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FHFA said, “Overall, the set of modest changes to guarantee fees are roughly<brevenue neutral for the Enterprises and will result in either little or nornchange for most borrowers.”   </p

In conjunction with the fee changes FHFA announced its decision to<bstrengthen financial and operational eligibility standards for mortgagerninsurance companies.  According to a factrnsheet from Fannie Mae, the revised standards include financial requirementsrnthat seek to ensure that private mortgage insurers can meet their obligationsrnin time of economic stress.  The insurersrnhave several avenues though which to do this including raising capital,rnentering into reinsurance contracts, and replacing illiquid assets with liquidrnones.  The new standards also includernrequirements to govern the relationship between the GSEs and the insurers suchrnas uniform claim processing timelines and quality control requirements.</p

In releasing the new fee structure FHFA said it has determined that currentrnfees, on average, are at an appropriate level and that some modest adjustmentsrnto upfront guarantee fees are also appropriate.  FHFA Director Melvin L.rnWatt said the new fees represent “the culmination of months of review andrnanalysis and reflects input received from a wide range of stakeholders.”</p

According to Bloomberg, thernannounced fee changes means that FHFA has dropped plans to increase fees forrnborrowers in areas, such as New York and New Jersey, where legal requirementsrnhave resulting in long and costly foreclosure timelines.

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