By: Krista Franks Brock
The Federal Housing Finance Agency (FHFA) plans to change the guarantee fees (g-fees) the GSEs charge on single-family mortgages. Starting in 2013, g-fees will be higher in some states than others, according to a notice sent to the Federal Register.
Currently, g-fees are the same throughout the country. However, the FHFA has noticed “a wide variation among states in the costs that the Enterprises incur from mortgage defaults,” according to its notice to the Federal Register.
As per the current national model, “borrowers in states with lower default-related carrying costs are effectively subsidizing borrowers in states with higher costs,” the FHFA stated.
The proposed method of adjusting the g-fees considers three aspects of a state’s foreclosure environment, including the number of days it generally takes a GSE to foreclose a property and “obtain marketable title to the collateral,” the daily carrying cost to the GSE in the state, and “the expected national average default rate on single-family mortgages acquired by the Enterprises.”
FHFA notes the five highest-cost states include Connecticut, Florida, Illinois, New Jersey, and New York.
In these states, lenders would pay a g-fee increased by between 15 and 30 basis points.
Lenders could pass the fee on to borrowers by adjusting the interest rate. However, FHFA states, “Because the upfront fee is paid only once, its impact on the annual interest rate is much smaller than the upfront fee itself.”
For example, a borrower with a 30-year fixed-rate loan in the amount of $200,000 would pay between $3.50 and $7.00 per month.
“The size of the fee adjustments are intended to reflect the disparity in costs, as compared to the national average,” the FHFA stated in a press release announcing its notice.
The FHFA states it may reassess its methodology and adjust for updates to state laws and industry regulations in the future.
The FHFA is currently accepting public comment on its proposed methodology.