Signage stands outside Freddie Mac headquarters in McLean, Virginia, USA, on Tuesday, October 1, 2019.
Andrew Harrer | Bloomberg | Getty Images
Consumers will have to pay more to refinance their mortgages after Fannie Mae and Freddie Mac announced that they are raising rates for lenders for loans.
The change was created to protect both entities from the added risk posed by the coronavirus pandemic. In a letter to lenders, Fannie Mae specifically cited “market and economic uncertainty resulting in higher risk and cost”;.
Price adjustment adds 0.5% of the loan amount to the consumer cost. That amounts to $ 1,400 above the average home mortgage today. It will start in September, which means it will basically apply to all refinements that are not in process.
The move was met with strong criticism from the mortgage industry, seeing it as a slap in the face to a sector of the economy that has flourished during the pandemic.
“This announcement is bad for our nation’s homeowners and the rapid economic recovery,” Bob Broeksmit, CEO of the Mortgage Banking Association, wrote in a statement. “Asking Fannie Mae and Freddie Mac to pay a 0.5% fee on the refinancing mortgages they buy will raise interest rates for families trying to get appointments completed in these challenging times.”
Mortgage refinances have been on the rise for months as interest rates continue to set new record highs almost every week.
Borrowers today have a record amount of equity in their homes, due to high house values and a conservative mentality among consumers since the collapse of homes over a decade ago. Consumers have been able to save not only monthly payments through refinancing, but also attract cash for a long time during these difficult economic times. Banks have also made huge profits from all activities.
Fannie Mae and Freddie Mac do not lend to consumers, but they buy loans from lenders and package them into securities that are then sold to investors. They then guarantee the principal and interest on the loans in case of default.
Fannie and Freddie have been very profitable lately, with a combined second-quarter profit of $ 4.3 billion, according to earnings statements. The Federal Housing Finance Agency, which regulates both, is in the process of removing them from their 11-year term under government conservatory, which would require them to raise substantial money.
The move, however, appears to be flying in the face of other actions to help support the housing and mortgage markets.
“At a time when the Federal Reserve is buying $ 40 billion in agency MBS a month to help cut financing costs for mortgage borrowers to support the wider economy, this move raises those costs and undermines the Federal Reserve’s policy. said the Mortgage Bankers Brooksmith Association.
The added cost can also have political consequences.
“This is negative for the economic recovery, negative for the housing market,” wrote Jaret Seiberg, housing policy analyst for Cowen Washington Research Group. “He also exposes President Trump to accuse him of trying to tax housing at the height of the economic crisis. This is a political responsibility for the president. We expect Democrats to take advantage of this.”
The biggest concern is whether the move has been made because the FHFA is increasingly concerned that Fannie Mae and Freddie Mac could face huge losses when the mortgage rescue program ends and borrowers have to start making their payments again. The programs were re-created in April and staged more borrowers than FHFA director Mark Calabria originally envisioned.
There are currently just under 4 million borrowers in government and private sector mortgage prevention programs. These allow them to delay their monthly payments by up to a year.
The tariff increase was decided only on mortgage refinancing, not on loans used to buy a home.
“Rates are higher for refineries,” noted Matthew Graham, COO of Mortgage News Daily. “The FHFA sees this and concludes that lenders have money to give refs. It’s a tax based on jealousy, greed, and maybe more than a little contempt.”