Recently, the Federal Housing Finance Agency (FHFA) announced that it has increased the guarantee fees charged to lenders for certain high balance second home loans, leading to an increase in borrower costs. This new fee structure will impact borrowers with loans of greater than $510,400, and the increase will vary depending on the loan balance.
The FHFA is the regulator of Fannie Mae and Freddie Mac, two government-sponsored entities (GSEs). These two entities have a large share of the secondary mortgage market, and when they increase their fees or adjust their pricing, it affects many borrowers. The increase in guarantee fees applies to all second home loans with high loan balances, regardless of whether the loan is purchased by either the GSE or another lender.
The increase in fees is due to the FHFA's aim to protect taxpayers from potential losses that might be caused by high-balance second home loans. In the past, these loans were deemed to be riskier than other types of mortgages, as borrowers often have less money available to pay the mortgage if they run into financial difficulties. As a result, the FHFA has determined that increasing the guarantee fees is the best way to ensure that the GSEs will not face losses if borrowers don’t repay the loans.
The increase in fees will directly affect borrowers, as the increase will be passed on to them in the form of higher mortgage rates. According to the FHFA, the average increase for borrowers with loans of over $510,400 will be 0.50%. This translates to an additional $1300 in finance costs for every $250,000 borrowed. The increase in rates may make obtaining second home loans more expensive for some borrowers, and could even lead to fewer people applying for them.
Borrowers should keep this new fee structure in mind when calculating their ability to repay a second home loan. It is important to remember that these fee increases will only apply to high balance loans, so those looking to purchase or refinance a second home with a loan amount under $510,400 will not be affected.
In summary, the FHFA recently announced that it has increased the guarantee fees for certain high balance second home loans in an effort to protect taxpayers from potential losses. The increase will apply to all second home loans with loan amounts greater than $510,400, and borrowers will be required to pay an additional 0.50% in financing costs for every $250,000 borrowed. The increased fees could make second home loans more costly for some borrowers, and thus reduce the number of people that are able to obtain such loans. Nonetheless, those with loans under $510,400 will not be impacted by this change.
This article was contributed on Jun 30, 2023