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Last updated on February 3rd, 2021 at 10:16 am
Earlier this month it was reported that if you’re in the process of refinancing your mortgage, you may end up paying more than you expected.
Fannie Mae and Freddie Mac said that they will start charging a 0.5% “adverse market fee” on all refinances, including both cash-out and non-cash-out refis.
Starting from 1st Sept with the aim of covering $6 billion losses caused by the coronavirus pandemic.
The new fee imposed by Fannie Mae and Freddie Mac was changing the calculus of whether it’s advantageous to refinance your mortgage!
The Federal Housing Finance Agency, which regulates Fannie and Freddie, said the two government-sponsored enterprises “requested, and were granted, permission from FHFA to place an adverse market fee on a mortgage refinance acquisitions.”
A senior White House official told the Wall Street Journal that the Trump administration “has serious concerns with this action” and would review the fee.
Now The Federal Housing Finance Agency has instructed both the agencies to hold off on the implementation and postpone it to December.
And Additionally, has directed them to limit as to which refinances will be subject to the fee.
Loans with balances below $125,000 will be exempted as nearly half of these are held by lower-income borrowers.
The fee will also not apply to loans made through Fannie Mae’s HomeReady and Freddie Mac’s Home Possible affordable refinance programs, which are aimed at low-income Americans and first-time homeowners.
In announcing the delay, FHFA explained why the fee was being implemented. “The proceeds from the fee will be used to cover $6 billion in projected losses across Fannie and Freddie.
Those losses include an estimated $4 billion in loan losses due to projected forbearance defaults, $1 billion in foreclosure moratorium losses, and $1 billion in servicer compensation.”
The surprise announcement of the fee earlier this month prompted many lenders to raise their interest rates.
Loans can take many weeks to close, meaning that lenders were on the hook for covering the fee in instances where borrowers had already locked in a rate.
When the fee is implemented in December, it is likely that lenders will factor the additional cost into the rates they offer homeowners for refinances.
That could put a curb on the high volume of refinancing in recent months due to the record-low mortgage rates.
Bob Broeksmit, president and CEO of the Mortgage Bankers Association, said, “It doesn’t make sense, the implementation timeline is intentionally punitive and absurd.
By this artificial increase, it requires a larger drop in rates for it to be worthwhile for borrowers to refinance,”
The refinance fee faced severe criticism from lenders, consumer advocates, and lawmakers. Arguing that it conflicted with the White House’s actions encouraging support of homeowners.
NerdWallet home and mortgage expert Holden Lewis noted it as odd that they’re not charging the fee on purchase mortgages, too, if the fee was being implemented because of economic uncertainty!
Reference Source: MarketWatch
