Magazine article Mortgage Banking

FHFA Mandates 10 Bp Hike in Guaranty Fees for 2012

Magazine article Mortgage Banking

FHFA Mandates 10 Bp Hike in Guaranty Fees for 2012

Article excerpt

On Dec. 29, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac would increase their guaranty fees by 10 basis points (bp) starting April 1, 2012. The increase was included as a provision in H.R. 3765 (The Temporary Payroll Tax Cut Continuation Act of 2011).

An industry update memo distributed by Keefe, Bruyette & Woods (KBW), New York; on the guaranty fee provision states that the new law's language allows for further increases to the government-sponsored enterprises' (GSEs') guaranty fee in the future.

The KBW memo states, "H.R. 3765 mandates that the G-fee be increased to reflect 'the risk of loss, as well as the cost of capital allocated to similar assets held by other fully private regulated financial institutions, but such amount shall be not less than an average of 10 basis points.' This language suggests that further increases are possible based on FHFA's assessment of risk."

FHFA has noted that in 2012 it will further analyze whether additional G-fee increases are necessary to meet other requirements of the law.

The KBW note reported that according to third-quarter 2011 data, the average effective guaranty fee for Fannie Mae was 26. …

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