Rock-bottom mortgage rates are dangling an enticing revenue source in front of federal lawmakers: Guarantee fees, known as g-fees.
The American Bankers Association, the National Association of Realtors, the Mortgage Bankers Association and almost two dozen other industry groups sent a joint letter to Congress on Friday warning against using housing like a “piggy bank” to offset government spending.
The lower rates go, the more enticing it becomes to add a few basis points to g-fees because it won’t disqualify as many borrowers. But, the costs to consumers are high, the groups said. Hiking g-fees by 10 basis points equals an additional $5,100 in payments on a $255,000 loan over 30 years.
President Donald Trump’s recent budget proposal included an increase in g-fees as an offset to federal spending.
“We firmly believe that g-fees should only be used as originally intended: as a critical risk management tool to protect against potential mortgage credit losses,” the groups wrote. “Homeownership cannot, and must not, be used as the nation’s piggy bank.”
G-fees are set by government-controlled Fannie Mae and Freddie Mac to cover the credit risk and other costs incurred when they back mortgages. The fees are typically passed on in the form of higher financing costs for consumers.
The average U.S. rate for a 30-year fixed mortgage fell to 3.29% last week, the lowest ever recorded by Freddie Mac in a series that goes back to 1971.
“Today’s housing market continues to show strength, but lawmakers must avoid taking any steps that may exacerbate affordability challenges, which could in turn have negative consequences for the broader economy,” the letter said.
“The unintended effects of any proposed g-fee increase or extension – no matter how well-intended – will be to raise the cost of homeownership for middle-class Americans, while curtailing refinance activity that helps to keep creditworthy borrowers in their homes,” it said.
Congress raised g-fees to cover unrelated spending during the Great Recession, and homeowners are still paying for it, the groups said.
“That increase harmed homebuyers by raising the cost of homeownership in all parts of the country – and continues to do so during the duration of the provision’s decade-long lifespan, which expires in 2021,” the industry groups said.
The letter also supported passage of bipartisan bills pending in Congress that would ban the use of g-fees to offset spending not related to mortgages. The House of Representatives bill is H.R. 5055, and the Senate’s bill is S. 1463.
Other groups that signed Friday’s letter included the Independent Community Bankers of America, the National Association of Home Builders, the American Land Title Association, the National Association of Federally-Insured Credit Unions, and the Center for Responsible Lending.