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TH E M R EP O RT | 61 O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T SECONDARY MARKET THE LATEST G-Fees Level Off FHFA says current structure adequately reflects risk of new acquisitions T he guarantee fees, also known as g-fees, charged by Fannie Mae and Freddie Mac lev - eled off in 2015 after more than doubling in the prior five-year period, according to the FHFA's annual report on the fees to Congress. The FHFA is required by the Housing and Economic Recovery Act (HERA) to submit a report annually to Congress on g-fees, which are intended to cover costs that Fannie Mae and Freddie Mac incur for guarantee - ing the payment of principal and interest on single-family loans they acquire from lenders. The average single-family guarantee fee rose by just two basis points in 2015, up to 59 basis points. "This stability is consistent with FHFA's April 2015 determi - nation that the fees adequately reflected the credit risk of new acquisitions after years of sharp fee increases," the report stated. "During the five-year period from 2011 to 2015, fees had more than doubled from 26 basis points to 59 basis points." A comprehensive review of the adequacy of g-fees the GSEs charged completed by the FHFA in April 2015 found "no compel - ling economic reason to change the overall level of fees. The FHFA did, however, direct the GSEs to make certain adjust - ments effective with September 2015 deliveries. One of the spe- cific changes the FHFA directed the GSEs to make was eliminat- ing the 25-basis point upfront adverse market charge (in place since 2008) and replace revenue lost from eliminating the charge with changes to other upfront fees, addressing risk-based and access-to-credit considerations. "Overall, the modest changes were approximately revenue neutral for the Enterprises," the report stated. According to the report, acqui - sitions showed an improvement in expected profitability mea- sured in the difference between the charged g-fee and modeled costs—including targeted return on modeled economic capital that has been calculated for these loans. "The Enterprises expected their 2015 acquisitions to gener - ate returns in line with their targeted levels," the report stated. "In 2014, expected returns on the yearly acquisitions were below the targeted level. The improve - ment in 2015 was mainly due to an acquisition loan mix that represented lower credit risk as compared to the prior year."