Even with the last week’s weaker than expected job report, which would generally lead to rates staying as is, if not moving slightly lower, you can expect rates to tick up a bit starting this week. The reason is a bit complicated and technical, but here’s the long and short of it. While factors such as credit score, down payment (for purchases), equity position (for refinances), and term (30 year, 15 year, etc.) will affect your rate, there are other factors from the investor’s standpoint, that will affect it as well. One such factor is called the guarantee fee, otherwise known as the “g-fee.”
A guarantee fee is a fee charged by entities such as Fannie Mae and Freddie Mac. They help pay for things that happen behind the scenes of a mortgage transaction. Mortgage lenders “pool” loans together and sell them in blocks. They will also sell the servicing of a loan to another entity. This simply means that just because Bank A collects your payments, Lender B still owns your mortgage. Things like this are a cost to lenders and they pass this off in the form of an adjustment to interest rates. Hence, the g-fee.
The FHFA (Federal Housing Finance Agency) is increasing this fee, partly in hopes of making Fannie Mae and Freddie Mac a less attractive option for those in the market for a home loan. The FHFA’s adjustment to the g-fee goes into effect on November 1, 2012, but lenders are preparing for that by adjusting rates starting this week. The reason for this is that if you start a new mortgage application today, by the time you loan closes and funds, the lender will be trying to securitize your loan with Fannie or Freddie at the time the new fee is in place. Rates could look as much as .25% higher this week, although the jobs report of last Friday is keeping things tame at the week’s open.
How do you combat this? Apply now if you’re in the market for a refinance. If you’re purchasing, shop around with a few lenders. Know you credit score when you call to avoid too many credit inquiries. This will keep you in a position of being an educated and qualified borrower.
