If you are in the process of refinancing your mortgage, you may end up paying more than you expect.
Fannie Mae FNMA,
and Freddie Mac FMCC,
announced Wednesday evening that they will now pay a reverse 0.5% market fee for all refinances, including refis-cash-out and non-cash. The new payment takes effect September 1
“As a result of risk management and forecasting losses caused by economic uncertainty and the market associated with COVID-19, we are introducing a new Market Condition Tariff on Pricing,” Fredi Mac said in a statement to lenders.
The Federal Housing Finance Agency, which regulates Fannie and Freddie, said the two government-sponsored companies “sought and were given permission by the FHFA to impose an unfavorable market rate on mortgage refinancing purchases.”
Fannie and Freddie are not lenders themselves – on the contrary, they buy loans from lenders, pack them in mortgage-backed securities and then sell those securities to investors. Fannie and Freddie also offer guarantees to investors and advances even when borrowers are in arrears.
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The new tariff can add up to a considerable amount in many cases. The average home nationwide was worth $ 291,300 as of the second quarter, according to the National Association of Realtors. Therefore, if you applied this fee for a mortgage on a home worth so much, assuming a 20% down payment, the payment would cost over $ 1,100. The Mortgage Banking Association, a trade group representing lenders, said the fee would reach about $ 1,400 per loan on average.
It’s not the first time Fannie and Freddie have set a fee like this. In 2007, Fannie Mae imposed a 0.25% surcharge on all mortgages purchased by lenders in response to the global financial crisis.
“If you had a ref on hold and you did not block it or you are just thinking about a ref and you would not have acted yet, then the customer pays thousands of dollars as long as that remains in effect.”
But the new tariff was immediately met with criticism after it was announced. “Fannie and Fredi say they are charging the fee to take into account market uncertainty and higher risk,” said Holden Lewis, home and mortgage expert at personal finance website NerdWallet. “But if that ‘s really the reason, it’ s weird that they’re not charging mortgage fees, either.”
Others argued that time could catch homeowners and borrowers out of custody.
“It doesn’t make sense,” Bob Broeksmit, president and CEO of the Mortgage Banking Association, told MarketWatch. “The implementation deadline is deliberately punitive and absurd.”
Since June, it has taken an average of 48 days to close a refinancing loan, according to mortgage technology firm Ellie Mae. Therefore, lenders will have a lot of credit already in the pipeline where borrowers have already closed at a rate and are waiting to complete the loan.
If lenders are unable to complete those loans by September 1, they will be required to pay the fee. However, if a borrower had not yet closed a rate with their lender, the cost of the new fee would be passed on to them in most cases.
“If you had a ref on hold and you did not block it or you are just thinking about a ref and you would not have acted yet, then the customer pays thousands of dollars as long as that remains in effect,” Broeksmit said.
Broeksmit also questioned the necessity of the fee. Millions of borrowers across the country have sought patience in their mortgages since the pandemic began, but that number has plummeted in recent weeks.
And roughly a quarter of people who entered into a patience agreement, meaning they could spend monthly payments, made their payment in July, Brooksmi said. Moreover, borrowers applying for a refinancing need to be current in their mortgage in the first place, making those loans perhaps less risky. Many lenders have also enforced stricter requirements for borrowers to qualify for a mortgage.
The new tariff threatens to make refinancing a less lucrative proposal for homeowners, who still have to block market levels. The volume of refinancing has increased in recent months due to the low mortgage environment. Since March, mortgage rates have dropped to low levels in eight separate cases.
But borrowers applying now will not be so lucky. “With this artificial increase, it requires a larger drop in rates for it to apply to borrowers being refinanced,” Broeksmi said.