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Adverse market fee fueled g-fee profitability in 2021

Guarantee fees rose to 56 bps in 2021

Fannie Mae and Freddie Mac purchased a record $2.52 trillion in single-family loans in 2021, with the average guarantee fee — expected to cover credit losses, administrative costs and cost of capital — rising 2 basis points from the prior year to 56 bps.

That uptick is largely thanks to the controversial 50 bps “adverse market fee” applied starting in late 2020, which originators railed against and was ultimately discontinued in July 2021.

According to the Federal Housing Finance Agency‘s annual report on guarantee fees, the average upfront g-fee in 2021 increased 2 bps to 13 bps. Meanwhile, the average ongoing g-fee, which are factored into each loan’s interest rate and collected each month over the life of a loan, remained unchanged at 43 bps.

Per the regulator’s annual report, the average g-fee on rate-term refinances increased by 3 bps to 52 bps, and average fees for purchase loans decreased by 1 bps to 55 bps.

Of the GSEs’ acquisitions in 2021, 35% were purchase mortgages, 41% were refinance mortgages done to secure new interest rates or loan terms, and 24% were refinance mortgages for which cash was taken out.

The FHFA found that profitability increased for all products but especially for 15-year fixed rate loans due to the higher fees.


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Guarantee fees increased the most for low LTV loans “because of the high prevalence of rate-term refinances in low LTV loans,” the FHFA said in its report.

In 2021, 75% of guarantee fees in came from large sellers, with just 1% coming from small sellers. In 2020, 73% of g-fees came from large sellers.

When Fannie and Freddie first announced the fee in August 2020, lenders were given only three weeks’ notice. After significant pushback from industry, the implementation was pushed to Dec. 1, 2020. The 50-basis point fee eventually netted the agencies $5.3 billion

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