Congress is debating how to pay for a 10-month extension of the payroll tax cut, an extension of unemployment benefits, and increased Medicare payments to doctors. They are considering funding the extension via a mandate to Fannie Mae and Freddie Mac to increase their guarantee fees or “g-fees” by at least 10 basis points on the rate. For example, for a $ 200,000 home loan, the increased g-fee (assuming an approximate rate hit of .125% in rate) would equate to $ 250 more per year in interest, or $ 7,500 more over a 30-year mortgage. (This information comes from a report written by a Senior Loan Officer with WR Starkey Mortgage, LLP). The Congressional Budget Office estimated that the increase would ultimately pay for about $ 35.7 Billion of the cost of the payroll tax extension.
What exactly is the “g-fee”? The “g-fee” or Guarantee fee is an amount charged by mortgage-backed securities providers like Freddie Mac and Fannie Mae, to help protect against credit-related losses in the overall mortgage portfolio. In essence, the “g-fee” acts a lot like insurance and helps lower the overall risk.
Officially, the increase to guarantee fees will begin April 1, 2012. For more information on “g-fees” and the potential impact on new mortgages, please contact your trusted financial advisor. To read more on this topic you may visit the National Mortgage News site.