While most of America was celebrating the holiday season, our leaders in Washington were arguing about the Federal Spending Bill and the extension of a middle class tax credit. If you didn't follow the results, there was a compromise that extended both for two months. Congress went home and silence filled the airwaves.
The part of the tax credit extension that got very little coverage was the decision on how to finance the cost. You will be hearing much more about this in the near future. Literally every mortgage written to conventional standards over the next ten years will be more expensive than it would have been before the compromise.
The agreement is to increase the guarantee fee (G fee) charged by Fannie Mae and Freddie Mac for the process of endorsing the loans into the securities market. These fees are included in the interest rate you see on your mortgage document. This compromise will increase the G fee by .20%.
If you dissect a note rate, there is a bond payment rate at the bottom. On top of that rate, the G fee is added and a payment to the company that collects and disperses payments is added. By example a 4% bond price may have a .25% G Fee and a .25% servicing fee. Your note rate would be 4.5%. Now you can add a .20% additional G fee for a note rate of 4.70%.
This increase in fee structure will be applied to all loans sold to the agencies as of April 1, 2012. Because it takes time to originate, close and deliver the loans, you will see an increase in mortgage rates beginning this week depending upon how long you would like to lock in your rate. And be especially careful if you have a currently locked rate but you will be late closing the loan. Extensions fees have been increase to allow for the increase in the guarantee costs.
Congress has found a new funding source and you are living in it. A two month compromise on a one year tax credit has created a ten year tax on every one buying or refinancing a home.