The Federal Housing Finance Agency (FHFA) found that the average total guaranty fee charged by Fannie Mae and Freddie Mac on single-family mortgages decreased to 22 basis points in 2009 from 25 basis points in 2008.
The agency’s second annual report on GSE guaranty fees stated that the decline in the total guaranty fees charged by each enterprise in 2009 resulted from a substantial improvement in the credit profile of the single-family mortgages that these agencies acquired relative to 2008.
Products, credit scores, and LTV ratio spectrums all showed improvements as 15-year-fixed-rate mortgages grew as a share of total acquisitions, the FHFA said. Borrower credit scores also improved, while fewer loans with low down payments were acquired.
The share of mortgages with risk layering decreased substantially, and the improvement in the credit profile of acquisitions “more than offset” the effect of the guaranty fee pricing increases enacted by Fannie Mae and Freddie Mac in 2008 and 2009, the agency reported.
For mortgages in 2009, each GSE set the guaranty fees at levels high enough to cover expected costs and to provide a modest return in capital. The only exception to this policy was for Home Affordable Refinance Program (HARP) loans, which help the enterprises reduce credit exposure.
While the guaranty fees charged for HARP loans were not expected to reach the targeted rate of return, the new loans will likely perform better than the mortgages they refinanced and the guaranty fees charged for these loans are generally higher than the fees on the original mortgages.