Now that the fantasy football season is over for me I can get back to real work and focus on exciting things like guarantee fees and monetary policy. How’s that for a hook? If you’re still reading I’d like to point your attention to a matter that will affect you if you’re looking into refinancing a mortgage or planning on purchasing a home and borrowing the money to do so. I don’t know if you’ve been paying any attention to the news recently regarding the payroll tax holiday, but the House of Representatives has voted on and agreed to extend the tax cut and that bill has subsequently been sent along to the senate for their approval. The senate has made changes and it’s yet to be seen what version will finally hit the President’s desk for his approval or veto. There’s a lot of talk about how to pay for the tax cut and items are always tacked on to bills that the public doesn’t know about most of the time, but there has been an addition to this bill that should concern anyone seeking a new mortgage. The original version of the payroll tax cut bill I’m talking about concentrated on g-fees, or guarantee fees. What are g-fees? If you’re a fan of Eezy-E they you’d know exactly what a real g is, but that’s not what g-fees are. Investopedia.com defines guarantee fees like this, “Fees charged by mortgage-backed securities (MBS) providers, such as Freddie Mac and Fannie Mae, to lenders for bundling, servicing, selling and reporting MBS to investors. The main component of the guarantee fee is charged to protect against credit-related losses in the mortgage portfolio (think of it like MBS insurance). You can read more about it here, but it’s basically insurance, and the cost of insurance is always passed along to the borrower. If you have a loan now then you’ve already been charged these guarantee fees in the form of discount points, or the cost for your particular interest rate. The House added an increase to g-fees of 10 basis points for any loan delivered to Fannie Mae or Freddie Mac. Ten basis points amounts .100% in cost to the loan so a $300,000 loan amount will carry an additional cost of $300. You may think, “Well that’s not a big deal, what’s $300 dollars to me?” Factor in the cost of title/escrow fees, lender fees, processing, underwriting, recording, and origination fees and you’ll realize that every dollar counts. The National Mortgage News has an article today talking about the Senate’s changes to the bill, one of which is the increase to FHA premiums because the g-fee hike on Fannie and Freddie MBS would cause a run to FHA loans. A higher number of FHA loans will mean a greater exposure to loan losses and mortgage insurers don’t like losses. So you see when the government starts messing around with things it’ll usually cost you more money. For an interest rate market that’s being held down artificially do you feel that increasing the rate fee is a good idea?
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