DeMarco: Guarantee Fees will Continue Gradual Rise

Guarantee fees (G-fees) are likely to continue the pattern of gradual increases initiated since Freddie Mac and Fannie Mae were placed in conservatorship.   Edward J. DeMarco, Acting Director of the Federal Housing Finance Agency told an audience at the American Mortgage Conference in Raleigh, North Carolina yesterday that the steady increases, over time, should gradually reduce taxpayers’ risk from the financial support they provide to the two government sponsored enterprises (GSEs).

Risk, however, is only a part of the motivation for increasing the cost to lenders and borrowers for the loan guarantees.  DeMarco said that even with the improvements in the GSEs’ pricing of credit risk, these fees remain less than what one would likely observe in a purely private, competitive market.

He reminded the audience of his remarks at the same conference one year ago in which he spoke of his preference for a series of periodic, gradual hikes in the G-fees rather than one or two larger adjustments.  Since then, he said, there have been two such increases; the first took place in April and was an across the board 10 basis point increase.  The second, set to begin later this year, is designed to average 10 basis points across the two companies’ books of business with actual increases varying by loan terms and other factors.  “These increases will move Enterprise pricing closer to what it would be were mortgage credit risk borne solely by private capital, and it could begin to incentivize private firms to increase their participation in the mortgage market.  We intend to stay on this path with future increases,” he said.

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