The Federal Housing Finance Agency (FHFA) just announced that it will be pushing back the proposed refinance mortgage fee from September 1 to December 1, 2020. This means that Fannie Mae and Freddie Mac will not be implementing this controversial loan pricing adjustment for three more months.
Understanding the Refinance Mortgage Fee
The original plan had this fee being implemented starting September 1. Fannie Mae and Freddie Mac would essentially be charging an extra 0.5% fee to lenders on any refinance mortgages bought by the government-backed companies. This pricing adjustment would be a flat-rate 0.5% of the total loan amount due upfront. It wouldn’t affect the refinanced mortgage interest rate at all. So, if the loan was for $200,000, the fee would be an additional $1,000 on top of the loan.
Homeowners were concerned that this fee would negatively impact mortgage rates and increase monthly mortgage payments. Most lenders would likely roll the fee into the overall loan, so there would be a slight increase in the cost of getting a home refinance. Some lenders may choose to eat the extra expense themselves. Still, the overall savings of refinancing down to a lower rate or shorter loan length would provide net savings for the borrower. This fee also does not have any impact on new home loans.
Understanding the Backlash
The truth is, this fee is an inconvenience for lenders trying to process refinance mortgages while the market conditions are perfect for refis. Home prices are high and mortgage rates are at historic lows. It’s a great time to refinance if you qualify. Meanwhile, the COVID-19 economy is affecting the financial well-being of so many homeowners that the introduction of such a fee felt like very poor timing.
Naturally, the housing industry was against the implementation of this fee. Here’s what the Mortgage Banker’s Association had to say:
“The additional 0.5% fee on Fannie Mae and Freddie Mac refinance mortgages will raise costs for families trying to make ends meet in these challenging times. In addition, 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.”
Delaying the Refinance Mortgage Fee
Feeling this pressure from the housing industry, the FHFA decided to change course and delay the implementation of this refinance mortgage fee back to December 1 on all loans over $125,000. That means it is still coming and it is still being implemented on low-amount loans, but lenders and borrowers have more time to prepare and take advantage of the current favorable market conditions.
You also have to consider all the protections that have been temporarily put into place to help borrowers and renters in the pandemic economy. There are mortgage forbearance options and eviction/foreclosure moratoriums that have been helping individuals stay in their homes, but putting a major strain on the lending industry when people aren’t making rent and mortgage payments.
Here are some expense projections:
- $4 billion in loan losses because of forbearance defaults
- $1 billion in servicer compensation and other forbearance expenses
- $1 billion lost because of foreclosure moratorium laws
As a mortgage lender, we certainly don’t like any new fees that potentially get in the way of us helping more borrowers with their home loan needs. I can understand why this fee is being implemented, but I do commend the FHFA for making this tough decision to push back the start date. We know it’s coming eventually, but it gives us much more time to prepare while still getting positive business done while forbearance allowances and foreclosure moratoriums are still in place.
If you have questions about this new fee and how it may affect your refinance mortgage, let me know. Call Transparent Mortgage today at (619) 701-3906 or email me personally at firstname.lastname@example.org