Brodie Stephens- Broker Associate Selling Homes in Folsom | Placerville | Pollock Pines | El Dorado Hills | Elk Grove | Roseville | Rocklin

The New York Times

The guarantee fee – a hidden fee inside the interest rate quoted on a home mortgage – has been mandated by Congress to increase this spring, and other increases are likely later to take place later this year and next.

Making sense of the story

• The guarantee fee has been charged by government sponsored entities like Fannie Mae and Freddie Mac for more than three decades.  The fee does not show up in borrowers’ mortgage documents or good-faith estimates, and it is little known outside the industry.  According to a Fannie Mae spokesman, the fee “gets incorporated into the underlying rate the borrower pays.”
• An interest rate is usually made of up three parts: The largest goes to the bank or the investors who buy the loan; the smaller portion is for the mortgage servicer that collects monthly payments; and then there’s the guarantee fee.  Fannie and Freddie charge guarantee fees as a form of insurance against default for the loans they acquire and resell to investors.
• The guarantee fee will rise 10 basis points on April 1; the increase was included in the two-month extension of the payroll tax reduction last December.  A basis point is equal to one one-hundredth of 1 percent, or 0.01 percent.
• One way to avoid the guarantee fee is to use a lender that does not sell off its loans – for instance, a community bank or a credit union.
• In addition to offsetting risks, the fees provide a primary source of revenue for Fannie Mae and Freddie Mac.  Both organizations started raising fee rates in 2008 during the housing crisis, as foreclosure costs rose.

Read the full story
http://www.nytimes.com/2012/03/04/realestate/mortgages-a-hidden-fee-is-set-to-rise.html?_r=1&ref=realestate

• In coming weeks, federal policy makers could roll out pilot programs to further test the concept of renting out single-family homes.
• There are two different types of programs that officials are likely to consider.  Under the first, the Federal Housing Administration could sell properties in bulk to investors who agree to rent them out.
• A more likely option for Fannie Mae and Freddie Mac would be to set up pools of properties in which third-party investors would take a stake.  Investors could be responsible for handling maintenance and day-to-day operation of the rental pool, with Fannie and Freddie sharing in some of the returns.

Read more about the pilot programs at http://blogs.wsj.com/developments/2012/01/12/six-questions-on-foreclosure-to-rental-programs/.

In the third quarter of 2011, 82 percent of homeowners who refinanced their first-lien home mortgage either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table, according to a report by Freddie Mac. Of these borrowers, 44 percent maintained about the same loan amount, and 37 percent of refinancing homeowners reduced their principal balance.”Cash-out” borrowers, those who increased their loan balance by at least five percent, represented 18 percent of all refinance loans; the average cash-out share during the 1985-to- 2010 period was 46 percent.More info