Mortgage Rates Steady Near 3-Month Highs - G-Fees (Guarantee Fees) Are Questioned

Mortgage Rates were unchanged to just slightly higher to begin the holiday-shortened week. With the exception of last Thursday, rates are the highest they've been in more than three months. The most prevalently quoted rate for ideal, conforming 30yr Fixed loans remains 4.625%.

Market conditions were exceptionally calm today, and there's a good chance that will continue as the holidays keep market participants away. Most lenders will release rate sheets as normal tomorrow, but bond markets, including the secondary mortgage market, will close 3 hours earlier than normal and remain closed all day Wednesday. In general, lenders tend to be more conservative with rates during this time of year.

"Conservative" in this case, means "less likely to change rate sheets in the middle of the day" and "wanting to see more market improvement than normal before offering lower rates." The current scenario is compounded by uncertainty over the latest round of fee increases for Fannie/Freddie loans.

The fee increases pertain to the Guarantee Fees (or "G-fees") charged by Fannie and Freddie in order to guarantee the repayment of mortgages. G-fees are a regular feature in Fannie/Freddie loans and they've been steadily rising since 2010. The announcement of an increase of 0.10% on December 9th was no surprise.

But there are two components to G-fees--the permanent (or "ongoing") 0.10% mentioned above which affects all similar loans equally, and the upfront G-fees which depend on credit quality (also known as Loan Level Price Adjustments or LLPA's). The same announcement that raised the ongoing G-fee by 0.10% also served as notification that Fannie and Freddie would soon release updated LLPA's. They did this last week and the implication was fairly alarming for rates in the first quarter of 2014.