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Jan 13

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Why are rates going up next month, and why should you care?

DISCLAIMER – Boring “mortgagese” below. I’ll cut to the chase and tell you first why you might care about what I am about to share with you:

If you or someone you care about is contemplating a new mortgage in the coming days, and are waiting for a reduction in rates – keep in mind that rates/fees will have to improve approximately 1/2 percent more to compensate for this pending increase. My recommendation is to lock in as soon as possible – I’ll explain why:

Most including industry experts had never heard the term: G-Fee (short for Guarantee Fee) until very recently.  This fee, up until the “Temporary Payroll Tax Cut Continuation Act of 2011″ (Passed by the President and Congress on 12/29/11) was used by Fannie/Freddie to build reserves to pay for the losses on the loans that went into Mortgage Backed Securities (MBS).

With this new legislation, Congress is now using the revenue from the  G-fee for something entirely outside the scope of the mortgage industry (this was allowed to happen after Fannie & Freddie became complete government agencies – versus their prior quasi government agency status).

“On Dec. 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011. Among its provisions, this new law directs the Federal Housing Finance Agency (FHFA) to increase guarantee fees charged by Fannie Mae and Freddie Mac (the Enterprises) by no less than 10 bps (basis points) (this is equal to approximately 50 bps or 1/2 percent)  from the average guarantee fees charged by these companies in 2011 on single-family mortgage-backed securities…” from Statement of FHFA Acting Director, Edward J. DeMarco Regarding Implementation of Guarantee Fee Increase.

I have attached the entire government memorandum if you want to learn more.

Effective for loans that will be going into the Fannie/Freddie MBS bonds, and that have settlement dates between now and April, rates will be increasing slightly. As of now however, there has been no change announced regarding USDA, FHA and VA loans.

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All the best,

Tom Pessemier, Mortgage Advisor MLO 117989 | Mortgage Advisory Group
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