House financing, refinancing? Hidden fees..

Let's be technical here, just a bit, to understand better what is in a loan "rate".

A hidden fee is set to rise
The guarantee fee – a hidden fee inside the interest rate quoted on a home mortgage – has been mandated by Congress to increase this spring, and other increases are likely later to take place later this year and next.

A little bit of background on the subject:

The guarantee fee has been charged by government sponsored entities like Fannie Mae and Freddie Mac for more than three decades. The fee does not show up in borrowers’ mortgage documents or good-faith estimates, and it is little known outside the industry. According to a Fannie Mae spokesman, the fee “gets incorporated into the underlying rate the borrower pays.”

An interest rate is usually made of up 3 parts: The largest goes to the bank or the investors who buy the loan; the smaller portion is for the mortgage servicer that collects monthly payments; and then there’s the guarantee fee. Fannie and Freddie charge guarantee fees as a form of insurance against default for the loans they acquire and resell to investors.

The guarantee fee will rise 10 basis points on April 1; the increase was included in the two-month extension of the payroll tax reduction last December. A basis point is equal to one one-hundredth of 1 percent, or 0.01 percent.

One way to avoid the guarantee fee is to use a lender that does not sell off its loans – for instance, a community bank or a credit union.

In addition to offsetting risks, the fees provide a primary source of revenue for Fannie Mae and Freddie Mac. Both organizations started raising fee rates in 2008 during the housing crisis, as foreclosure costs rose.

Read the full story in this New York Times article.

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