Section 1601 of the Housing and Economic Recovery Act of 2008 (HERA) requires the Federal Housing Finance Agency (FHFA) to conduct an ongoing study of the guarantee fees charged by Fannie Mae and Freddie Mac (the Enterprises) and to submit a report to Congress each year.[1] The report is required to contain an analysis of the average guarantee fee and a breakdown by product type, risk class, and size. The report also must analyze the costs of providing the guarantee and provide a comparison to the prior year.[2] The report assists Congress in its oversight responsibilities. FHFA issued the first single-family guarantee fee report in 2009.[3]
This report discusses the guarantee fees charged in 2019 and provides a three-year perspective with data back to 2017.[4] The major findings in this report are: [5]
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For all loan products combined, the average single-family guarantee fee in 2019 increased 1 basis point to 56 basis points.
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The upfront portion of the guarantee fee, which is based on the credit risk attributes (e.g., loan purpose, loan-to-value (LTV) ratio, and credit score), decreased 2 basis points to 13 basis points.[6]
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The ongoing portion of the guarantee fee, which is based on the product type (fixed-rate or adjustable-rate, and loan term), increased 3 basis points to 43 basis points.
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The average guarantee fee in 2019 on 30-year fixed rate loans increased 2 basis points to 58 basis points, while the fee on 15-year fixed rate loans decreased by 1 basis point to 36 basis points. The fee on adjustable-rate mortgage (ARM) loans increased 2 basis points to 56 basis points.
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For each LTV and credit score group, the average guarantee fee increased by 1-3 basis points.
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The average guarantee fee by seller size was 55 basis points for the large (L) seller group, and 56 basis points for the medium (M) and small (S) seller groups.
Questions and comments about this report may be addressed to FHFA at: https://www.fhfa.gov/contact/general
[1] See Section 1601 of the Housing and Economic Recovery Act of 2008, Public Law 110-289, 122 Stat 2824 at https://www.congress.gov/110/plaws/publ289/PLAW-110publ289.pdf.
[2] In lieu of presenting costs of providing the guarantee, we present the difference between the revenue (guarantee fees) received and the estimated cost of guaranteeing a loan for a given target rate of return on capital.
[3] See prior guarantee fee reports at https://go.usa.gov/xP6mE.
[4] The five-year perspective of prior guarantee fee reports is replaced with a three-year perspective in this year's report due to changes in data source and methodology for certain tables and figures. Prior-year data in the text and subsequent tables and charts may not be consistent with data in previous FHFA reports due to such changes or data corrections.
[5] Due to rounding, the individual numbers in the text, tables, and charts may not compute exactly to the totals.
[6] Fannie Mae refers to upfront fees as “loan level price adjustments," while Freddie Mac refers to them as “credit fees in price." Upfront fees are converted to an annual g-fee equivalent by dividing the upfront fee by the expected number of years a loan will remain outstanding. Depending on the attributes of the loan, a typical new 30-year loan may be expected on average to exist for about 6 years, whereas a 15-year loan may be expected to last for closer to 4 years.