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Section 1601 of the Housing and Economic Recovery Act of 2008 (HERA) requires the Federal Housing Finance Agency (FHFA) to conduct an ongoing study of the guarantee fees charged by Fannie Mae and Freddie Mac (the Enterprises) and to submit a report to Congress each year. HERA requires an analysis of the average guarantee fee and a breakdown by product type, risk class, and volume of a lender's business. The report also must analyze the costs of providing the guarantee and provide a comparison to the prior year. FHFA issued the first such report in 2009.
This report discusses the guarantee fees charged in 2015 and provides a five-year perspective with data back to 2011. The major findings in this report are:
In April 2015, the Agency completed a comprehensive review of the adequacy of the Enterprises' single-family guarantee fees. FHFA found no compelling economic reason to change the overall level of fees. However, the Agency directed the Enterprises to make certain adjustments effective with September 2015 deliveries. Specifically, the Agency directed the Enterprises to eliminate the 25 basis point upfront adverse market charge that had been in place since 2008 and to replace the revenue lost from eliminating that charge with targeted changes in other upfront fees to address risk-based and access-to-credit considerations. Overall, the modest changes were approximately revenue neutral for the Enterprises.
The average single-family guarantee fee increased by two basis points in 2015 to 59 basis points. This stability is consistent with FHFA's April 2015 determination that the fees adequately reflected the credit risk of new acquisitions after years of sharp fee increases. During the five year period from 2011 to 2015, fees had more than doubled from 26 basis points to 59 basis points.
Acquisitions in 2015 showed an improvement in expected profitability. This is measured as the difference between the charged guarantee fee and modeled costs, including a targeted return on the modeled economic capital calculated for these loans. The Enterprises expected their 2015 acquisitions to generate returns in line with their targeted levels. In 2014, expected returns on the yearly acquisitions were below the targeted level. The improvement in 2015 was mainly due to an acquisition loan mix that represented lower credit risk as compared to the prior year.
Consistent with action taken by FHFA in late 2012 to remove pricing concessions for the largest lenders, the guarantee fees charged to the largest and smallest lenders had no material differences. The average guarantee fee for the smallest and largest lenders was within one basis point in 2015 and there was no material difference in the expected profitability between those two size groups. The smallest lender groups accounted for 41 percent of the dollar value of Enterprise acquisitions in 2015, up from 29 percent in 2011.
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