Fannie Mae and Freddie Mac instituted a new “Adverse Market Refinance Fee.” It adds a 50 basis points fee (0.5%) to most mortgage refinances starting Sept. 1, 2020. One industry group says the new fee increases the average cost of a refinanced mortgage by $1,400.
The two government service entities said in the lender letter the new fee was necessary due to “market and economic uncertainty resulting in higher risk and costs incurred” by Fannie Mae and Freddie Mac. Some insiders are speculating the new fee is an attempt by the government to benefit off record industry profits to build resources as the Trump administration tries to privatize the agencies.
The Mortgage Bankers Association issued a strong statement denouncing the action. "This announcement is bad for our nation's homeowners and the nascent economic recovery. We strongly urge the [Federal Housing Finance Agency], which had to approve this policy, to withdraw this ill-timed, misguided directive," Bob Broeksmit, the group’s CEO, said.
The new fee applies to HomeReady and high loan-to-value refinances without regard to the cap that otherwise applies to those transactions, according to the lender letter. Also, the price adjustment is in addition to any other price adjustments that are otherwise applicable to the particular transaction.
Boeksmit said it’s an additional cost most mortgagors can’t handle. “Requiring Fannie Mae and Freddie Mac to charge a 0.5% fee on refinance mortgages they purchase will raise interest rates on families trying to make ends meet in these challenging times. This means the average consumer will be paying $1,400 more than they otherwise would have paid. Even worse, the Sept. 1 effective date means that thousands of borrowers who did not lock in their rates could face unanticipated cost increases just days from closing.”
There’s also an additional cost to the federal government. Greg McBride, Bankrate.com’s chief financial analyst, said, “The new 0.5% fee … doesn’t pass the smell test. The irony is striking – the Federal Reserve is effectively printing money to buy government guaranteed mortgage backed securities in order to keep markets functioning, drive down mortgage rates, facilitate refinancing, and put monthly savings into consumers’ pockets. And now FHFA wants to grab that savings from the consumer and put it into Fannie and Freddie’s coffers.
“The Fed should immediately stop buying Fannie and Freddie issued mortgage-backed securities. The money creation that risks future inflation for all of us has been justified by keeping markets functioning and putting money into homeowners’ pockets. But not this. Refinancers that haven’t locked their rates and are waking up this morning to see this fee should consider abandoning their applications. This will only extend the breakeven period to recoup the costs of refinancing that deter homeowners from doing so in the first place.
“The FHFA should rescind this announcement and not be a roadblock to homeowners reducing their monthly mortgage payments.”