By Peter Ricci
The g-fee increase for Fannie Mae and Freddie Mac loans was undoubtedly the most controversial element of the payroll tax cut brawl in Congress last year – in case your memory is foggy, the added revenue from the g-fee hike funded the tax cut – but Congress has indicated that it will again consider a g-fee increase to combat the latest fiscal emergency on Capitol Hill.
The budgetary issues of 2012 involve the so-called “Fiscal Cliff,” the disarray that would result from approximately $500 billion of tax hikes and spending cuts taking effect in January 2013.
G-Fee Increase to Avoid the Fiscal Cliff
There are a number of details to consider regarding the potential g-fee increases:
- Congress is, likely, determined to avoid a second fiscal crisis in as many years, so to avoid the Fiscal Cliff, it will be scrounging around for new sources of revenue.
- Isaac Boltansky, a policy analyst at research firm Compass Point, told HousingWire that in terms of added revenue, anything’s on the table – including new g-fee increases.
- “We are rapidly approaching the fiscal cliff and members of Congress will be on the prowl for new revenue,” Boltansky said.
- And g-fee increases, given the vastness of Fannie and Freddie, can be quite lucrative; last year, when the first g-fee increase was first considered, the Congressional Budget Office estimated the 10-basis-point increase would haul in at least $3.3 billion in revenue.
- However, g-fee increases remain a controversial option because of their trickle-down affect – it a loan is more expensive for a lender to service, the lender will likely pass the expense on to the consumer in the form of higher fees.
FHFA and Private Markets
Coincidentally, g-fee increases were just in the news; just last Friday, the Federal Housing Finance Agency (FHFA) announced that it would be raising g-fees for Fannie and Freddie by 10 more basis points, effective Nov. 1, to encourage more private funding of mortgages.
Edward DeMarco, the acting director of the FHFA, explained that the increases are the next natural step in returning the mortgage markets to normal levels (in the post-boom market, the government has been funding the vast majority of mortgages).
“These changes will move Fannie Mae and Freddie Mac pricing closer to the level one might expect to see if mortgage credit risk was borne solely by private capital,” DeMarco said.