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Article

Guarantee Fees—An Art, Not a Science

Laurie S. Goodman, Jim Parrott, Ellen Seidman and Jun Zhu
The Journal of Structured Finance Summer 2015, 21 (2) 15-27; DOI: https://doi.org/10.3905/jsf.2015.21.2.015
Laurie S. Goodman
is the center director for the Housing Finance Policy Center at the Urban Institute in Washington, DC.
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  • For correspondence: lgoodman@urban.org
Jim Parrott
is a senior fellow at the Urban Institute in Washington, DC.
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  • For correspondence: jparrott@urban.org
Ellen Seidman
is a senior fellow at the Urban Institute in Washington, DC.
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  • For correspondence: eseidman@urban.org
Jun Zhu
is the senior methodologist for the Housing Finance Policy Center at the Urban Institute in Washington, DC.
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  • For correspondence: jzhu@urban.org
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Abstract

This article examines the potential impact of increasing the guarantee fees that Fannie Mae and Freddie Mac (the government-sponsored enterprises [GSEs]) charge lenders. The authors argue that guarantee fees are very assumption driven. They then identify the three most important assumptions made in determining the fees. They conclude that transparency regarding these assumptions is critical and that, under any reasonable set of assumptions, the fees should not be increased for the least risky loans. The authors also argue that guarantee fees should be set high enough to cover expected losses under a stress scenario plus expenses. Beyond that, the GSEs’ mission should be taken into account in determining the required return on capital.

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The Journal of Structured Finance: 21 (2)
The Journal of Structured Finance
Vol. 21, Issue 2
Summer 2015
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Guarantee Fees—An Art, Not a Science
Laurie S. Goodman, Jim Parrott, Ellen Seidman, Jun Zhu
The Journal of Structured Finance Jul 2015, 21 (2) 15-27; DOI: 10.3905/jsf.2015.21.2.015

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Guarantee Fees—An Art, Not a Science
Laurie S. Goodman, Jim Parrott, Ellen Seidman, Jun Zhu
The Journal of Structured Finance Jul 2015, 21 (2) 15-27; DOI: 10.3905/jsf.2015.21.2.015
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  • Article
    • Abstract
    • G-FEE DETERMINATION: METHODOLOGY
    • COMPARISON OF RESULTS TO THE PRESENT SYSTEM
    • REQUIRED G-FEES ARE SENSITIVE TO THE REQUIRED RATE OF RETURN
    • MORE THOUGHTS ON ALLOCATING CAPITAL
    • IMPLICATIONS OF THIS ANALYSIS
    • CONCLUSION
    • APPENDIX
    • ENDNOTES
    • REFERENCES
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  • PDF (Subscribers Only)

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