Hiking the guarantee fees borrowers pay Fannie Mae and Freddie Mac will cause private lending in America to flourish but also increase the cost of home ownership, the Royal Bank of Scotland said Friday in response to the Treasury's proposed housing market reforms. "The GSEs currently provide 95% of housing finance in the U.S.; any reductions of their involvement in supporting mortgages mean interest rates will have to go up to induce private lending," RBS analysts concluded in the report. The Treasury's proposal on higher guarantee fees paid by the GSEs mirrors suggestions made by the American Bankers Association. The ABA said earlier this week it supports one or more successors to the government-sponsored entities and higher guarantee fees paid by investors to the GSEs. The ABA believes higher guarantee fees would raise GSE pricing levels, sending homebuyers back to the private sector. The so-call "G fees" could also be used to repay the Treasury and taxpayers for their support of Fannie Mae and Freddie Mac, the ABA said. RBS added that even at their current levels guarantee fees "are much more risk-based than before" due to changes made after the housing crisis. "Ironically, the implementation of risk-based pricing means that the lower-creditworthy borrowers aren't taking on new loans or refinancing because the interest costs they pay are too high," the Royal Bank of Scotland said in its analysis of the proposed GSE reforms. "Although G-fees are more risk based than before, it makes sense that this further increase will reduce the GSEs role and make way for private lending." Also Friday, JPMorgan Chase analysts also said the higher fees will probably increase costs of borrowing in the short term, especially for bonds insured by Ginnie Mae. "Remember that these costs were recently raised 50 basis points to between 85 and 90 bps, so on top of the bank rate, borrower's will be paying 1.1% to 1.5% additional insurance costs on an annualized basis," JPMorgan analyst Brian Ye said. Write to Kerri Panchuk.