The average total guarantee fee charged by Fannie Mae and Freddie Mac on securitized single-family mortgages fell to 22 basis points (bps) in 2009, from 25 bps in 2008, according to the Federal Housing Finance Agency (FHFA). The guarantee fee covers projected credit losses from borrower defaults over the lives of the loans, administrative costs and a return on capital. The average ongoing fee charged by Fannie and Freddie declined to 13 bps from 14 bps, while the average upfront fee slipped to 9 bps from 11 bps, according to the FHFA report (download here). Average fees varied depending on product type in 2009, but are still higher than levels seen in 2007: The reduction in guarantee fees -- or g-fees -- arrived on the heels of "significant improvement" to the credit profile of mortgages acquired since 2008, FHFA said. Product, credit score and loan-to-value ratio spectrums improved among mortgages acquired by the government-sponsored enterprises (GSEs). Fannie and Freddie acquired fewer low downpayment mortgages, and fewer loans with risk layering. More borrower had credit scores of 720 or more -- 85% from 68% of borrowers in 2008. The share of borrowers with credit scores between 660 and 719 slipped to 13%, from 24% a year earlier, while the share of borrowers with credit scores below 660 fell to 2%, from 8% in 2008. For mortgages acquired in 2009, the GSEs set the g-fees at levels sufficient to cover expected costs and to provide a modest return on capital, FHFA said, noting one exception with Home Affordable Refinance Program (HARP) loans. While the g-fees on HARP loans are not expected to achieve the target rate of return, the program offers the GSEs reduced credit exposure. Write to Diana Golobay.