The Federal Housing Finance Agency [1] (FHFA) has released its annual report on single-family guarantee fees charged by Fannie Mae and Freddie Mac (the Enterprises). The Housing and Economic Recovery Act of 2008 requires FHFA to conduct an ongoing study of the guarantee fees charged by the Enterprises and to submit a report to Congress each year.
Guarantee fees are intended to cover the credit risk and other costs that the Enterprises incur when they acquire single-family loans from lenders. These include projected credit losses from borrower defaults over the life of the loans, administrative costs, and a return on capital. The report compares year-over-year 2018 to 2017 and provides data over five years back to 2014. Significant findings of the report include:
For all loan products combined, the average single-family guarantee fee in 2018 increased 2 basis points to 55 basis points. The upfront portion of the guarantee fee, which is based on the credit risk attributes (e.g., loan purpose, loan-to-value ratio, and credit score), was unchanged at 15 basis points. The ongoing portion of the guarantee fee, which is based on the product type (fixed-rate or adjustable-rate, and loan term), increased 2 basis points to 40 basis points.
The average guarantee fee in 2018 on 30-year fixed-rate loans was unchanged at 56 basis points, while the fee on 15-year fixed-rate loans increased by 1 basis point to 37 basis points. The fee on adjustable-rate mortgage (ARM) loans fell 4 basis points to 54 basis points.
Higher interest rates accompanied by increasing house prices in 2018 led to a smaller share of both rate-term refinances and 15-year loans acquired by the Enterprises. The larger share of purchase loans and a growing focus on pilot programs for first-time homebuyers and affordable housing led to a slight increase in the share of loans with higher loan-to-value (LTV) ratios and lower credit scores.