CAPITAL MARKETS Fannie and Freddie Pricing Changes

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  • 8/3/2019 CAPITAL MARKETS Fannie and Freddie Pricing Changes

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    CAPITAL MARKETSCAPITAL MARKETSJanuary 2012

    Fannie Mae and Freddie Mac Pricing Changes due to G-Fee Increase

    As you probably have gathered from the notices you have recently received from otherwholesale lenders, investors have immediately implemented the increase in the Fannie

    Mae and Freddie Mac guarantee fee. We apologize and wish we could have given you

    more notice. The following schedule illustrates the timing of guarantee fee increase on45, 30 and 15 day locks;

    Lock Period Price Change effective Date

    45 days 1/11/2012

    30 days 1/18/201215 days 1/23/2012

    In addition, we need to temporarily adjust our lock extension and relock fees. Again, thisis temporary until the new guarantee fee is completely absorbed. The following scheduleillustrates the cost and timing of the our temporary relock and extension policies;

    Expiration Date Additional Extension/Relock Fee

    Prior to 2/10/12 0

    After 2/10/12 50 bps

    As you will see, our pricing, relock and extension fee changes are consistent and in line

    with what you will see from other lenders.

    The following are some FAQs that might help you explain this to your clients:

    Why is this occurring?As directed by the Federal Housing Finance Agency (FHFA),

    pursuant to the Temporary Payroll Tax Cut continuation Act of 2001, Fannie Mae and

    Freddie Mac are required to increase the guarantee fee charged for all mortgagesdelivered on or after April 1, 2012 by 10 basis points. In the next few months, FHFA will

    further analyze whether additional guarantee fee increases are appropriate to ensure the

    new requirements of the law are being met.What is a guarantee fee?It is a fee charged by mortgage-backed securities (MBS)

    providers such as Fannie Mae and Freddie Mac, to lenders for bundling, servicing, selling

    and reporting MBS to investors. The main component of the guarantee fee is charged toprotect against credit-related losses in the mortgage portfolio. Think of it as insurance.

    Commonly known in the mortgage industry as g-fee, this is a deduction in relation tothe interest rate.

    How does a 10 basis points increase in guarantee fee impact my borrower? A 10 bpincrease in g-fee effectively raises the interest rate to the borrower by 12.5 basis points. A

    12.5 bp increase in rate generally translates to a 50 bp increase in fee or a 50 bp reduction

    in rebate. Since all investors have already implemented this increase in their respectivepricing structures, you will be seeing the effect of this increase in the rate sheets

    published by all lenders.

    Access Real Estate Lending | Office: 530.897.4090 | Fax: 530.892.2090CA DRE: 01215493 | NMLS: 1850 | Am Equal Housing Lender