The G-Fee, and what it means for interest rates

The “G-Fee” and how it affects lending and therefore Real Estate is a somewhat confusing and complicated thing. In a nutshell, the G-Fee is managed by the FHFA (Federal Housing Finance Agency) and is the guaranty fee charged by Fannie Mae & Freddie Mac. It is built into the pricing models which dictate interest rates. The FHFA announced last week that there will be an increase of 10 bps (basis points) to the current fee. Normally, 10 bps is not that big of a deal (most of the time about 1/8 to rate), but because it affects price with multiples and can vary between rate & coupon, this will be roughly 70-80 bps on actual interest rate to your buyer!

At the end of the day, rates should be moving up sharply by February. Not exactly the best news, I know. Some key points to remember:

• Have your pre-approved buyers re-checked for price points. A jump in rates will have a significant effect on their debt-to-income ratios. The pre-approval to $300k might be down $260k in the dead of winter.
• For deals in process, keep a sharp eye on the rate lock expirations & corresponding closing dates. In many cases, the cost to extend a rate lock could be thousands of dollars!
• For buyers currently looking and negotiating offers within the next few weeks, you’ll want to do everything you can to get that transaction closed by late-January, early February. We don’t have the exact date just yet, but are using 2/15/14 for now. Furthermore, someone who is on the fence or hesitating to submit an offer, this information could prove invaluable, as that home will cost hundreds more per month if they waited to buy something else not too far down the road…

As always, we are here to help in any way that we can. Please don’t think twice of calling or emailing us here at Blue Water Mortgage, any time. Our Loan Officers are around 7 days a week, and their phones are often on from 6 am to 10 pm.