Why refinancing just got more expensive

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The Federal Housing Finance Agency, the regular for Fannie Mae and Freddie Mac, announced that it would require a 0.5 percent fee, or 50 basis points, on mortgage refinances that close after September 1 through Fannie Mae or Freddie Mac, which purchase most U.S. mortgages from lenders.  “Based on their projected COVID-related losses, Fannie Mae and Freddie Mac (the Enterprises) requested, and were granted, permission from FHFA to place an adverse market fee on mortgage refinance acquisitions.”

“In light of market and economic uncertainty resulting in higher risk and costs incurred by Fannie Mae, we are implementing a new loan-level price adjustment,” the letter from the larger of the two government-sponsored enterprises said.

And Freddie Mac said: “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,” it said.

The response from the Mortgage Bankers Association was:  “Tonight’s announcement by the GSEs flies in the face of the administration’s recent executive actions urging federal agencies to take all measures within their authorities to support struggling homeowners,” the MBA statement said.

“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,” it said. “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,” the trade group said.

“The housing market has been able to withstand many of the most severe effects of the COVID-19 pandemic,” MBA said. “The recent refinance activity has not only helped homeowners lower their monthly payments, but it is also reducing risk to the GSEs and taxpayers. At a time when the Federal Reserve is purchasing $40 billion in agency MBS per month to help reduce financing costs for mortgage borrowers to support the broader economy, this action raises those costs and undermines the Federal Reserve’s policy.

MBA called on the FHFA to reverse the decision.

“This announcement is bad for our nation’s homeowners and the nascent economic recovery,” the MBA statement said. “We strongly urge FHFA, which had to approve this policy, to withdraw this ill-timed, misguided directive.”

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