What are Loan Guarantee Fees?
Loan guarantee fees are fees charged to lenders for services like bundling, selling, and reporting mortgage-backed securities (MBS) to applicable investors. The fee is charged to protect against losses due to credit-related issues in the mortgage portfolio. Basically, it works like MBS insurance. Small portions of the guarantee fee are also used to cover internal expenses in relation to the mortgage portfolio.
Guarantee fees simultaneously allow corporations that are selling the MBS to profit from sales while also benefiting the lender by reducing risk, and benefiting the borrower by allowing a more flexible credit requirement.