JSMedia – As the percentage of Fannie Mae and Freddie Mac loans made by small mortgage lenders rises, so too does the corresponding G-fee. However, while these lenders continue to grow their share of the market, their g-fees have increased by 250% since 2009. They are now averaged at 58 basis points, up from 22 basis points in 2009.
A number of policy changes have been implemented under Acting Director Thompson, including the end of the adverse market fee, a permanent option to use desktop appraisals, and the limited use of the Common Securitization Platform for Fannie and Freddie. He has also reopened the capital rule. While there are many improvements in the capital requirements of the GSEs, there is still more that needs to be done. These companies have too high g-fes, which in turn discourages the industry from doing important work.
Despite these improvements, the federal government should never authorize any additional GSE charters. Handing over the guarantee to these vertically integrated Wall Street banks would make these institutions even more competitive, and it would harm the underserved. In fact, the GSEs lag in providing mortgage credit to low-income borrowers, which makes the issue even more pressing. The good news is that the trends are improving for small mortgage lenders, according to policy director of the Community Home Lenders Association (CHLA).
G-Fee Parity Helps Small Mortgage Lenders Gain GSE Market Share
The smaller players have previously struggled to capture a piece of the mortgage market. However, this new G-Fee Parity Program has helped them gain a foothold in the lending market. Moreover, these mortgage lenders have lower guarantee fees than their larger counterparts. Unlike those, smaller companies can also buy more loans from Freddie Mac and Freddie Mae.
The G-Fee is usually referred to as a guarantee fee for mortgage-backed securities. But it also covers other services provided by the GSE. For example, the bank may charge a g-fee to the bearer of the note. And this fee is included in the interest rate of the mortgage. It will not be charged in the course of the loan’s life.
The Federal Housing Finance Agency recently released a study examining the FHA’s G-Fee’s impact on the GSE’s business model. The FHA has criticized the Enterprises’ “utility model” as a way of keeping Freddie and Fannie from taking too many risks. As such, the CHLA has laid out a detailed plan that can guide future regulation of the mortgage market.
The federal government’s recent announcement on G-Fee Parity is a welcome change. The Federal Housing Finance Agency has decided to maintain the current levels of G-Fee to facilitate competition among lenders. In addition, the HUD report also highlights the impact of the proposed changes on the marketplace. The new regulations also make the Enterprises more profitable. The U.S. is a huge market for mortgage financing and its reliance on Freddie and Fannie are vital to its continued success.
The G-Fee is a fee that the FHA charges to ensure that the borrower’s mortgage is protected. It is a fee charged to the lender by the GSE. It is an obligation that the lender must meet when investing in securitized MBS. These fees are not the same, and the fees of different lenders may not be comparable.
The FHFA’s recent review of the fee structure has found that the small lenders are still paying less than the larger ones to ensure the same level of protection. The fees are important for the lender and the borrower. If you want to get into the GSE market, you must be a part of the small mortgage industry. If you’re not, the FHFA is a great way to enter the market.
The new mortgage guarantee fee is the first step towards achieving parity with the GSEs. The FHFA’s current proposal is to implement a 10 basis point increase in the fee. The fee is also to adjust the up-front fee for different risk categories. The proposed changes are intended to increase the competition by allowing small lenders to borrow at lower rates.