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 2016 and provides a five-year perspective with data back to 2012. The major findings in this report are:

• For all loan products combined, the average single-family guarantee fee fell by 2 basis points from 59 basis points to 57 basis points in 2016. The upfront portion of the guarantee fee, which is based on the credit risk attributes (e.g., loan purpose, loan-to-value ratio, and credit score), remained unchanged at 16 basis points. The ongoing portion of the guarantee fee, which is based on the product type (fixed-rate or ARM, and loan term) fell from 42 basis points to 40 basis points. Ongoing fees fell primarily because of competitive pressures between the Enterprises, and less because of changes in the product type mix from 2015.
• The average guarantee fee in 2016 on fixed-rate, 30-year loans fell by 2 basis points to 61 basis points, while the fee on fixed-rate, 15-year loans fell by 4 basis points to 37 basis points. The pricing on adjustable-rate mortgage (ARM) loans remained steady at 59 basis points.
  
• The lower guarantee fees in 2016 resulted in a small decline in the expected profitability of the loan acquisitions. The Enterprises measure expected profitability as the difference between the total charged guarantee fee and modeled costs, including a targeted return on the modeled economic capital calculated for these loans.
• In 2016, extra-small lenders paid, on average, 2 basis points less than extra-large lenders in total guarantee fees. Since 2013, the guarantee fees among the size groups has been comparable, with only small differences in a given year. 
• Based on quarterly monitoring of guarantee fees, FHFA observed that average fees were declining as the ongoing portion of the overall guarantee fees declined for both Enterprises. FHFA responded by issuing direction in July 2016 to set minimum ongoing guarantee fees by product type, effective in November 2016, consistent with our responsibility to ensure safety and soundness.

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