If you are in the process of refinancing your mortgage, you may have to pay more than you expected.
Fannie Mae FNMA,
and Freddie Mac FMCC,
announced on Wednesday night that they would charge a 0.5% adverse market fee on all refinancing, including cash and non-cash rediscounts. The new fee is effective from September 1
Freddie Mac said: “As a result of risk management and loss forecasting due to the economic and market uncertainty associated with COVID-19, we will introduce a Conditional Credit Fee. new market, ”Freddie Mac said in a statement to lenders.
The Federal Housing Finance Authority, which regulates Fannie and Freddie, said two government-funded businesses “requested and authorized the FHFA to place a detrimental market fee for re-acquisitions. mortgage financing. ”
Fannie and Freddie themselves are not lenders – instead, they buy loans from lenders, package them into collateralized securities, and then sell that security to investors. Fannie and Freddie also offer guarantees to investors and prepayments even when borrowers are overdue.
Also see:Mortgage rates keep falling – will they eventually drop to 0%?
In many cases, the new fee can amount to a substantial amount. According to the National Real Estate Brokers Association, the median home nationwide was worth $ 291,300 as of the second quarter. Therefore, if you apply this fee to a mortgage on such a home of such great value, assuming a 20% down payment, the fee will cost more than $ 1,100. The Mortgage Bankers Association, a commercial group that represents lenders, says the average fee will go up to about $ 1,400 per loan.
This is not the first time Fannie and Freddie have imposed a fee like this. In 2007, Fannie Mae imposed a 0.25% surcharge on all mortgages they bought from lenders in response to the booming global financial crisis.
‘If you have a pending and unlocked refi or are just thinking about a refi and haven’t taken action yet, then consumers will pay thousands of dollars as long as this is still in effect.’
But the new fee was immediately met with criticism after it was announced. “Fannie and Freddie say they are charging a fee to account for market uncertainty and the higher risk,” said Holden Lewis, mortgage and home specialist at personal finance website NerdWallet. “But if that’s really the reason, it’s weird that they don’t charge a mortgage either.”
Others argue that timing can distract homeowners and lenders.
Bob Broeksmit, president and CEO of the Mortgage Banking Association, told MarketWatch, “That doesn’t make any sense. “The implementation process is intentional and unreasonable.”
According to mortgage technology firm Ellie Mae, as of June, it takes an average of 48 days to close a refinance loan. As a result, lenders will have many in-progress loans where the borrowers have closed their interest rates and are just awaiting loan settlement.
If lenders are unable to complete those loans by September 1, they will be required to pay fees. However, if a borrower has not yet pegged to their lender, the cost of the new fee will be passed on to them in most cases.
“If you have a pending and unlocked refi or are just thinking about a refi and not taking action yet, consumers will pay thousands of dollars as long as this is still valid,” Broeksmit said.
Broeksmit also questioned the need for the fee. Millions of borrowers nationwide have been asking not to lend their mortgages since the pandemic began, but that number has declined in recent weeks.
And about a quarter of people who entered the ban agreement, meaning they could bypass monthly payments, made their July payments, Broeksmit said. Furthermore, borrowers who apply for refinancing in the first place are required to have their collateral, making those loans perceived as less risky. Many lenders have also fulfilled stricter requirements on borrowers to qualify for a mortgage loan.
The new fee level risks making refinancing a less lucrative proposition for homeowners who have yet to close the market’s bottom rate. The volume of refinancing has increased in recent months due to the environment of low mortgage rates. Since March, mortgage rates have fallen to a record low in eight separate times.
But the borrowers who apply now won’t be so lucky. “With this artificial increase, it requires a larger reduction in interest rates so that borrowers can value refinancing,” Broeksmit said.