Many Borrowers Saving 0.375% as FHFA Officially Delays Fee Hikes

By: Matthew Graham • Wed, Jan 8 2014, 12:41 PM

Two days after being sworn in as the first Senate-confirmed Director of the Federal Housing Finance Agency (FHFA), Mel Watt made good on his December 20th promise to postpone the scheduled increases in fees charged by Fannie and Freddie (G-fees).

A statement released today by the FHFA directed Fannie and Freddie to delay the implementation of the ongoing base G-Fee hike of 0.10% for all loans as well as the changes to the upfront G-fee grid, otherwise known as Loan-Level Price Adjustments (LLPAs), as well as the removal of the Adverse Market Delivery Charge (AMDC).

Of these changes, the AMDC component had the least impact on borrowers' bottom lines by far. Under the originally proposed changes, an overwhelming majority of loans would have been more expensive regardless of the AMDC removal. The fact that it remains intact is the lesser of 3 evils for anyone borrowing more than 60% of a home's value (or purchase price, in the case of purchase transactions).

The official statement echoes Watt's email to reporters on December 20th, which said he intended to announce the delay in order to "evaluate fully the rationale for the plan and the plan's likely impact on the GSE's risk exposure, the cost and availability of credit and how the plan would interface with the qualified mortgage standards."

Today's release added that the potential interaction with new mortgage rules "could be significant" and that Watt wants to "fully understand these implications before deciding whether to move forward with any adjustments to g-fee pricing.”

Watt intends to conduct a thorough investigation of these potential impacts as soon as possible. If it's determined that some or part of the initially announced changes will take place, the FHFA will give at least 120 days' notice from the time the evaluation is completed.

While 120 days might seem like a long time to fend off any ill effects, it wouldn't actually be 120 days for borrowers locking rates. This has to do with how the changes would be applied.

G-fee hikes are nothing new for Fannie and Freddie (the GSEs), who have implemented 3 similar hikes in the past 3 years. While this one stood to be the most detrimental for borrowers, the method of implementation relies on the date by which the GSEs acquire or securitize the new loan.

For instance, if the hike had gone ahead as planned, the GSEs would have required the increased fees on any loan acquired on or after March 1st or securitized on or after April 1st. Don't let the "acquired vs securitized" distinction slow you down.

All this means is that Fannie or Freddie are either going to buy the loan or guarantee that whoever buys it will receive their payments on time. The distinction is purely due to timing of the securitization process which necessarily occurs after the loan is closed and sold.

The bottom line is that in either case, the loans would be originated and closed around the same time--most of them closing in February and March. A loan closing in February, for instance, would need to be locked as early as the end of December for longer lock time frames. It's for this reason that some lenders had already priced in massive adjustments to the cost of 60 day locks by the end of December.

For that same reason, if the FHFA's evaluation results in any sort of fee increase, borrowers will see the effects as early as four months in advance of the date on the press release. In other words, "120 days" actually means "very soon" if we do end up seeing a G-fee hike.