FHFA’s New Refinance Fee Condemned By Mortgage Experts, May Cost Homeowners Extra $1,400

The Federal Housing Finance Agency, or FHFA, the regulator of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac) has unveiled a new 0.5% refinance mortgage fee that will become effective on Sept. 1, 2020.

“As a result of risk management and loss forecasting precipitated by COVID-19-related economic and market uncertainty, we are introducing a new market condition credit fee in price,” Freddie Mac said in a bulletin on Wednesday evening. “A 50-basis point market condition credit fee in price will be assessed for cash-out and no cash-out refinance mortgages.”

Similarly in a letter, Fannie Mae said it was imposing the fee “in light of market and economic uncertainty resulting in higher risk and costs incurred by Fannie Mae.”

HousingWire reported that the new fee on mortgage refinances could end up costing homeowners more than $1,400.

Noting that refinance activity has risen to 65.7% of total applications, the fee’s impact will occur immediately.

HousingWire hypothesized that for a loan of $291,300 (which was the median home price in the second quarter) the 0.5% would cost $1,456.

“Based on their projected COVID-related losses, Fannie Mae and Freddie Mac requested, and were granted, permission from FHFA to place an adverse market fee on mortgage refinance acquisitions,” FHFA told HousingWire.

HousingWire noted, however, the fee will not apply to purchase mortgage loans.

The Mortgage Bankers Association, or MBA, criticized the fee and called for its repeal.

MBA President and CEO Bob Broeksmit said the fee will increase 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 September 1 effective date means that thousands of borrowers who did not lock in their rates could face unanticipated cost increases just days from closing.”

Broeksmit added that recent refinance activity has “not only helped homeowners lower their monthly payments, but it is also reducing risk to [Fannie Mae and Freddie Mac] and taxpayers.”

He further cited that as the Federal Reserve is purchasing $40 billion in agency mortgage-backed securities per month to help “reduce financing costs for mortgage borrowers to support the broader economy, this action raises those costs and undermines” the Fed's policy.

Greg McBride, the chief financial analyst at Bankrate.com, told International Business Times by email the new refinance 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,” McBride said. “And now FHFA wants to grab that savings from the consumer and put it into Fannie and Freddie’s coffers.”

McBride warned the fee will hurt homeowners and consumers.

“Diluting the benefit of refinancing and discouraging homeowners from doing so during the worst economic downturn in 90 years doesn’t make sense,” he added. “As if there aren’t enough fees involved in refinancing, as if the process doesn’t contain enough unwelcome surprises for the borrower, now you have this.”

McBride recommended that 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,” McBride explained. “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 break-even period to recoup the costs of refinancing that deter homeowners from doing so in the first place.”

Matthew Graham, chief operating officer at Mortgage News Daily, described the fee as a “cash grab.”

Graham speculated the fee was announced because lenders now have wide margins. “In other words, lenders haven't dropped rates as much as the bond market would allow them to,” he wrote. “FHFA sees the wider margins and concludes lenders have extra profit to spare. That money would help further the FHFA's stated goal of building capital reserves of [Fannie Mae and Freddie Mac] sufficient to end the government's conservatorship of the agencies.“

Graham added: “Rest assured, this fee would never have been considered if rates were higher and lender margins were thinner.”