After all, with rates so low, it’s pretty much a no-brainer to expect a rise to spare looking silly.
It also appears as if rates bottomed already (back in late November) and are now just kicking around the floor, rising ever so slightly.
But with so much uncertainty still in the air, mortgage rates could technically fall lower if unemployment rises, if the European crisis worsens, or if our debt situation goes down hill.
Higher G-Fees on the Horizon
However, one reason mortgage rates are slated to rise is an increase in guarantee fees Fannie Mae and Freddie Mac charge banks and lenders who sell their loans.
These so-called “g-fees” are charged by the pair in exchange for bundling and selling the underlying mortgages as securities on the secondary market, and also for insuring default risk.
The FHFA, which oversees the pair, has already raised g-fees twice in the past year, and is expected to raise fees even more this year.
In fact, g-fees may increase “at least 50 basis points” this year, according to Robert Bostrom, a former general counsel at Freddie Mac.
He told Inside Mortgage Finance the FHFA will “clearly continue with g-fee increases” in 2013 in an effort to draw in more private capital into the government-dominated mortgage market.
Yes, Fannie and Freddie back the lion’s share of mortgages originated these days, and the FHA handles much of the rest.
In case you were wondering, FHA loans will also get more expensive this year, as HUD already announced measures to preserve its dwindling capital reserve.
In April, the annual insurance premium will rise, and in June, certain new FHA loans will be subject to mortgage insurance for the life of the loan.
This is all intended to bring in non-government money so the mortgage market gets back to “normal.”
Fee Passed on to Consumers
What it means for consumers is higher mortgage rates, though it’s unclear how much higher.
First off, we don’t know how much the pair will actually raise g-fees, if at all. And we don’t know how much the fee will translate interest rate-wise.
Back in September, when discussing state-level g-fee increases, the FHFA noted that because the increase may be a one-time upfront fee, its impact on an annual interest rate would be much smaller.
For example, if g-fees do rise by 50 basis points (.50%) and it’s completely passed on to the consumer, it could result in a mortgage rate just an eighth of a point higher.
So instead of snagging a rate of 3.50% on your 30-year fixed mortgage, the going rate may be 3.625%, or perhaps 3.75%.
While it sounds inconsequential, that eighth of a point can cost a borrower thousands over the life of a loan, and make things like refinancing less attractive.
And if mortgage rates rise for other reasons, such as better economic numbers and improved consumer sentiment, mortgage rates could increase more than forecast.
Put simply, it’s yet another reason why mortgage rates risk moving higher.
Read more: Why are mortgage rates rising?