Fannie Mae and Freddie Mac recently posted an article co-written by their respective CEOs, Hugh R. Frater and David Brickman. They wanted to personally address some of the latest news and information coming out about their organizations, primarily the pricing adjustments they are planning to implement on refinance mortgage loans.
You can read the full article here.
New Refinance Mortgage Fee
The original announcement came on August 12 that Fannie Mae and Freddie Mac would be adding a fee for any refinance mortgage loans that they purchase. As of September 1, 2020, mortgage lenders would be required to pay an additional 0.5 percent of the loan amount as a one-time charge. To be clear, it’s not an increase of the mortgage rate, but a one-time fee. Though they are charging the lender, this fee ultimately funnels down to the borrower in most—but not necessarily all—cases. It will be up to the individual lenders how they factor in this pricing adjustment.
Most conventional mortgage loans—including home refinance loans—are sold to Fannie Mae and Freddie Mac. They then repackage the loans into mortgage securities that are sold to investors. This allows these organizations to guarantee the principal and interest payments, thus protecting the lender in case the borrower defaults on their loan.
Setting the Record Straight
As you might expect, this announcement stirred up some confusion and controversy in the lending community and from borrowers worrying that their mortgages will go up. I’m glad Frater and Brickman shared this article to at least set the record straight. The truth is that refinances could be expensive after September 1 because of this fee, but then again it all depends on the mortgage rate that a borrower can lock in.
“Contrary to much of the criticism we have received since making this announcement, this will generally not cause mortgage payments to ‘go up,” the article claims. “The fee applies only to refinancing borrowers, who almost always use a refinancing to lower their monthly rate.”
The Bottom Line
Their argument is that borrowers are refinancing right now because the rates are low and they are able to reduce their monthly payments. That’s basically the goal of most refinances, other than those aimed at shortening the length of the loan so the borrower can pay off their principal sooner. Even with this extra upfront in place, a borrower should still be able to benefit from a home refinance. They anticipate a reduction in savings of about $15 per month. That means, on average, borrowers who apply for a refinance will be paying about $15 more per month. Because the fee is independent from the mortgage rate and placed on the actual principal value of the loan, it won’t directly affect your savings from the lower mortgage rate itself.
This fee only applies to new refinance mortgages and not new home loans, and it does not affect any existing mortgages at all.
The article also discusses other topics including mortgage forbearance programs and suspension of single-family foreclosure and eviction actions, both designed to let borrowers stay in their homes during the COVID-19 economic crisis. This also includes new forbearance programs for multifamily property owners who are willing to adopt certain tenant protections like halting any evictions.
I encourage you to read the whole article to get the story from their perspective. As a lender, we at Transparent Mortgage weren’t too happy to hear about these new refinance fees because home refinances have been such a vital part of the mortgage industry in 2020. Mortgage rates have been at historic lows while home prices keep rising, making for a perfect refinance recipe. This new fee will probably present a small bump in the road. Most borrowers should still benefit quite a lot from refinancing at a lower rate, knowing that this one-time fee will be rolled into the loan and barely even felt. However, since it is based on the value of the loan, larger refinance loans will feel it a little more than small loans.
If you have any questions about this new pricing adjustment from Fannie Mae and Freddie Mac, or you are looking to refinance your home loan before or after September 1, contact Transparent Mortgage today at (619) 701-3906 or email me personally at email@example.com