Increase in Guarantee Fees

Fannie Mae and Freddie Mac, the government-sponsored enterprises that purchase mortgages from lenders in order to create mortgage-backed securities, have announced that they will be increasing their guarantee fees next year to attract more private investment in the housing market.

Guarantee fees charged by Fannie Mae and Freddie Mac are fees that meant to help cover the issuer of the loan's expenses and reduce the risk of loss or default.

The new guarantee fees will be comparable to that of private investment houses.  The new fees will be implemented to encourage the private entities to invest the in housing market.

According to Edward J. DeMarco acting Director of the FHFA (Federal Housing Finance Agency), said that "The guarantee fees" charged would be increased to lessen the companies' long-term exposure to risks.  As Freddie Mae and Freddie Mac are backed by the tax payers, he said that the proposal would result to protecting the taxpayers from losing more money.  Fannie and Freddie have so far cost the taxpayers more than $140 billion in bailout money.  

In a CNBC report, according to the President's budget plan the increase in guarantee fees would produce $28 billion savings in over ten years.

However, some experts are worried that the increase in guarantee fees may hinder the possible recovery in the housing market which has suffered from falling prices since the credit crisis of 2008.  

If you need more information about guarantee fees, please don't hesitate to call or e-mail me.