A report from the Federal Housing Finance
Agency (FHFA) says that while the average fee charged by the government
sponsored enterprises (GSEs) for providing a loan guarantee (g-fee) has more
than doubled since 2009, both pricing differences and fee equity have
increased. The FHFA report is required for
annual presentation to Congress.
Fannie Mae and Freddie Mac, the GSEs,
acquire single-family loans from lenders, some of which they hold in their own
portfolios but most of which are securitized in the form of mortgage-backed
securities (MBS) and sold to investors.
The GSEs guarantee timely payment of interest and principal from
borrowers to investors in these securities and in return charge the lender
(seller) a g-fee to cover three types of costs they expect to incur. Costs include what they expect to lose on
average through borrower default, the costs of holding economic capital against
possible catastrophic losses from borrower default, and general and
administrative expenses. Cost of capital
is by far the most significant of these expenses, according to the FHFA.