In an effort to recover past losses, the Federal Housing Finance Agency (FHFA) is considering new g-fees in five states most affected by the housing downturn.
Labeling its losses as “exceptionally high,” the FHFA has selected Connecticut, Florida, Illinois, New Jersey and New York for the new g-fees, states that, according to the agency, have total carrying cost of loans that exceed the national average and pose the greatest financial risk for Fannie Mae and Freddie Mac.
FHFA: New G-fees For Higher Risk
As HousingWire recently noted, there are a number of clear details associated with the new g-fees:
- In the five aforementioned states, mortgages would have a new, upfront fee of 15 to 30 bps.
- That fee would be charged to lenders as a one time fee, paid upfront, for every loan Fannie or Freddie acquires.
- Obviously, with those g-fees, homeowners will pay a bit more on their mortgages; it’s estimated that for a borrower with a 30-year FRM of $200,000, the monthly mortgage payment will increase by $3.50 to $7.
Variations Among States With Mortgage Rules
G-fees are nothing new; Fannie and Freddie have always charged them as backup for the risk they take on when guaranteeing a mortgage, though the amount charged varies according to the type of loan product and the borrowers credit risk.
The new g-fees, though, are being targeted at the states that, as FHFA Acting Director Edward DeMarco pointed out in a letter, create greater costs to Fannie and Freddie with their policies on mortgage defaults and foreclosures, particularly in how all five states facing the higher g-fees are judicial states.
As we’ve covered before, judicial states require foreclosure proceedings to be overseen by a judge, and though the policy is supported by consumer advocates, it does add quite a bit of time to the foreclosure process; Illinois and Florida, for instance, have been poster children in the post-boom housing market for the judicial process, and Illinois had the highest foreclosure rate in the nation in RealtyTrac’s latest report. And because g-fees are normally set on a national scale, DeMarco wrote that states with less pronounced foreclosure costs (such as Texas, a nonjudicial state where where there are only 8,296 foreclosures, compared to 17,781 in Illinois and 40,200 in California) end up footing the bill.
“Because the enterprises currently set their g-fees nationally, accounting for expected default costs only in the aggregate, borrowers in states with lower default-related carrying costs are effectively subsidizing borrowers in states with higher costs,” he wrote.