Each mortgage contains a small hidden fee, known as the guarantee fee, or "G-fee." The fee has been silently included in mortgages for more than 30 years, and Congress has recently mandated an increase. It is not clear at this time when the increase will take effect, but it analysts anticipate that it will also cause interests rates to rise slightly.
If you are considering purchasing a home or refinancing your mortgage, make sure you get sound legal advice on your best options. It's also important to have a knowledgeable lawyer who can help you understand all of the terms of the contract and what your rights will be if you agree to the deal. Many potential borrowers may not know that some terms are negotiable.
The fee doesn't show up in estimates for potential borrowers, nor does it appear on mortgage documents. A spokesperson for Fannie Mae said that the g-fee gets incorporated in to the underlying rate that borrowers pay. Industry experts say that the g-fee is related to the sale of mortgage-backed securities. The fee can act as insurance against possible defaults for the loans that the plan to sell to investors.
Borrowers may be able to avoid the g-fee by working with a lender that does not sell of its loans as mortgage-backed securities.
In states like Michigan that continue to struggle with foreclosure, it may be difficult to find a bank that does not charge the fee. Often, banks charge the fee based on a percentage of the total value of your loan. With the government mandate to raise the fee slightly, some banks may turn to a flat fee to more evenly distribute the cost across all borrowers.
Source: New York Times, "Hidden Fee is Set to Rise," March 1, 2012.