G-fees Most Influential in New York

By Stevie Duffin Updated on 12/14/2012

By Daniel Duffield

According to analyst Sarah Hu of the Royal Bank of Scotland, the new guarantee fees proposal on Fannie Mae and Freddie Mac mortgages could potentially increase annual mortgage payments by $100 annually in the five applicable states.

Hu additionally cautioned that New York, which has already been fighting longer foreclosure timelines and decreased prepayment levels, will be most affected by the higher g-fee costs when these charges are passed on to borrowers.

The Federal Housing Finance Agency (FHFA) has lately stated intentions to increase guarantee fees on single-family mortgages obtained by the government sponsored enterprises (GSEs) in Illinois, Connecticut, Florida, New Jersey, and New York.

Hu conveyed that the state-level g-fee pricing illustrates a trend in the FHFA to consider local circumstances within their risk assessment.

Due to the fact that the government insures the loans in the event of default, the agency has been contemplating the financial impact which longer foreclosure timelines in the aforementioned states will have on expenses related to defaults.

Accordingly, the states in which the FHFHA has targeted with higher g-fees have proven to be the five states with the longest foreclosure timelines. Hu ranks these five states to have an average foreclosure of longer than 2 years.

In a statement, Hu said that the intended up-front fees would increase at a rate of approximately 15-basis points in Illinois, 20 basis points in Florida, Connecticut and New Jersey, and 30 basis points in New York, potentially adding a further $40 to $100 to annual mortgage payments starting in 2013.

Among these five states, the most significant fee increase is currently set to occur in New York. Since New York has prepayment levels which are currently much lower than the majority of other states as a result of higher mortgage taxes, the increase of 30 basis points for the G-fee will negatively affect refinance activity. Hu believes that the high populated areas should provide decent prepayment protection.

Hu has consented that the program could potentially be ill-received, but he believes that the pricing levels will still be beneath those provided in the private mortgage market. The only disadvantage would be that these fees will increase pricing for mortgages held by those who Hu refers to as “otherwise perfectly creditworthy borrowers.”

Under the strategic approach of the FHFA, homeowners in one of the involved states with 30-year fixed-rate mortgages of $200,000 could possibly see a rise in their monthly mortgage payment of between $3.50 and $7, and Hu believes that at the highest point this could amount to $100 annually.