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G-fee hikes: DeMarco’s last attempt to stimulate private capital

Originations may slow in the near term

December 10, 2013
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The Federal Housing Finance Agency caught the mortgage market somewhat off-guard Monday, announcing an expected rise in guarantee fees on new Fannie Mae and Freddie Mac business.

The FHFA said the base g-fee for all mortgages is expected to increase by 10 basis points.

But the big question is why the hike and why now?

Jeff Taylor with Digital Risk says the increase is simple.

"They are trying to do everything to stimulate private capital to bring it back into the market," he told HousingWire Tuesday.

He believes a hike in g-fees will lead to higher interest rates on Fannie and Freddie loans, but it also means private capital will see a more level playing field, giving private firms more incentive to jump back in.

And even though the market may be a little surprised, Taylor said, don’t be surprised if an early Fed tapering of mortgage bonds and Treasurys is next on their agenda.

He expects a tapering announcement possibly as early as the next Federal Open Market Committee.

First, the jobs data showed a drop in the unemployment rate — and now with Ed DeMarco, head of the FHFA, raising g-fees, the writing may be on the wall.

With rates going up along with g-fees, originations could slow down for a bit, but it’s mostly good news, Taylor pointed out.

"It will give rise to people looking to originate loans that are somewhat outside the qualified mortgage guidelines," he noted. And this is not bad for the housing market  since it gives more individuals a chance to buy homes, he pointed out.  

There’s another way to look at the rush to raise g-fees on the same week that Rep. Mel Watt, D-N.C., is expected to be voted in as the next FHFA leader. That is DeMarco may be making a last-minute push to get the private sector more involved in the mortgage finance system. 

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