G-Fees, What are they and how will they affect Interest Rates?
January 11th 2012
Recently, there’s been a lot of talk about G-fees (guaranty fees) increasing and how this may affect interest rates. You may have heard about this from a number of sources and there seems to be varying opinions…some more dramatic than others…floating around about what this will do.
The reason for the G-fee increase is because the Temporary Payroll Tax Cut Continuation Act of 2011 was recently signed into law. Among its provisions, this new law directs the Federal Housing Finance Agency (FHFA) to increase guarantee fees charged by Fannie Mae & Freddie Mac.
So you’re probably wondering what this all means to you. Because the increase specifically affects Fannie Mae & Freddie Mac we only expect to see changes in Conventional/Conforming products at this time. With the increase in G-fees we are starting to see a decrease on what investors are paying for a loan at a certain interest rate. Based on what we’ve seen so far, we can expect rates for Conventional/Conforming products to increase by .125% to .25% in the foreseeable future. So, it doesn’t translate into a dramatic increase but any increase is worth noting so it’s gotten its share of attention.
Also, it’s worth mentioning that this does not affect FHA. This will result in an even larger spread between Conventional and FHA rates. So, with FHA rates most likely staying the same and Conforming rates rising, FHA may be a more attractive option. For savvy borrowers with less than 20% down, it might make sense to put 3.5% down and save/invest the difference.
In conclusion, no…the sky is not falling. Yes, we will probably see a slight rise in Conforming rates in the coming months. However, we expect to continue to enjoy historically low rates for the foreseeable future. You can spend your time worrying about whether Tebow can continue passing like he did against the Steelers instead of stressing too much about where rates are going.
Summary: The Temporary Payroll Tax Cut directs the Federal Housing Finance Agency (FHFA) to increase G-fees charged by Fannie Mae and Freddie Mac. Interest rates on Conventional/Conforming products will likely rise .125% to .25% in the near future. This does not affect FHA rates so the spread between FHA and Conforming rates will increase.
If you have any questions, feel free to contact Mark or me and we will be happy to help. Joel Houwer









