In December, Congress agreed to a last minute deal extending the payroll tax cut. While the tax cut extension is very beneficial to Americans earning up to $106,800, the tax cut extension needed to be paid for somehow. Those funds are being acquired through Congress mandated G-Fee increases.
What are G-Fees?
G-Fees are guarantee fees charged by GSEs or government sponsored entities, like Freddie Mac and Fannie Mae, to help protect against credit related losses in the overall mortgage portfolio. It is a lot like insurance and helps lower the risks associated with borrowers with good (not perfect) credit. Borrowers with less than perfect credit can gain access to today’s rock bottom rates as a result of these guarantee fees when they otherwise may not.
So What Does This Mean?
Home buyers and refinancers will be impacted by the increasing G-Fees by at least 10 basis points on the rate. This will most likely impact the consumer by .125% in rate. Mortgage Bankers Association CEO David Stevens said the increase could mean an extra $4,000 in fees on a $200,000 mortgage. The Congressional Budget Office recently estimated that the increase will ultimately pay for about $35.7 billion of the cost of the payroll tax.
What exactly is the impact of the rate increase?
As an example, for a $200,000 home loan, the increased g-fee (assuming an approximate increase of .125% in rate) would equate to $250 more per year in interest, or $7,500 more over 30 years. Someone buying or refinancing a home can certainly choose to buy down the cost with cash up front – yet most borrowers will not.
Who will be impacted?
All new borrowers of Fannie Mae and Freddie Mac loans will be impacted by this increase. FHA loans will also be impacted as annual mortgage insurance premiums increase by 1/10th of a percent.
When will this take effect?
Though the official date that guarantee fees will increase is April 1, 2012 – rate sheets are already seeing increases. Why? Home loans that are being originated now are not likely to be closed, pooled, and securitized until April – the increase is being priced in earlier. Increased G-Fees will be in effect until October 1, 2021.
Inlanta Mortgage offers Fannie Mae/Freddie Mac agency products, as well as a full suite of jumbo and portfolio programs. The company is fully delegated HUD-FHA including FHA 203K, VA, and USDA approved. Inlanta Mortgage also offers numerous state bond agency programs.