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) for guaranteeing a mortgage. HERA further requires that FHFA annually submit a report to Congress on the results of its guarantee-fee study.1 HERA requires the report to contain an analysis of the average guarantee fee and a breakdown by product type, risk class, and seller size. Finally, HERA requires that the report reflect an analysis of the costs associated with providing guarantees and an analysis of any increase or decrease in guarantee fees from the preceding year.2,3
In this report, FHFA identifies and analyzes the single-family guarantee fees charged by the Enterprises in 2021. This report compares and contrasts the Enterprises’ 2021 guarantee fees with the preceding year. Further, it provides additional historical guarantee fee data back to 2018.
Below are the major findings comparing single-family guarantee fees from 2020 to 2021:4
Average guarantee fees
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Total average guarantee fees increased 2 basis points (to 56 basis points).
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Average upfront guarantee fees increased 2 basis points (to 13 basis points).5,6
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Average ongoing guarantee fees remained unchanged at 43 basis points.7
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, in this report FHFA presents 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 Due to rounding, the individual numbers in the text, tables, and charts may not compute exactly to the totals.
5 Fannie Mae refers to upfront fees as “loan level price adjustments,” while Freddie Mac refers to them as “credit fees in price.” For the purposes of reporting to FHFA, the Enterprises annualize upfront fees by dividing the upfront fee for a given loan by that loan’s specific present value multiplier (PVM). For example, a loan with an upfront fee of 75.15 basis points and a PVM of 6.18 would have an annualized upfront fee of 75.15/6.18 = 12.16 basis points. Depending on the attributes of the loan, a typical new 30-year loan may be expected to have a PVM of about 6 on average, whereas a 15-year loan may be expected to have a PVM closer to 4.
6 Upfront guarantee fees are a subcomponent of total guarantee fees and they reflect credit risk attributes such as loan purpose, loan-to-value (LTV) ratio, and credit score.
7 Ongoing guarantee fees are a subcomponent of total guarantee fees and they reflect a loan’s product type (i.e., fixed-rate or adjustable-rate, and loan term).