Newsletter - September 2020
A new “adverse-market” refinance fee announced by Fannie Mae and Freddie Mac was met with fierce criticism from real estate industry leaders last month.
As of Sept. 1, refinance mortgage loans sold to the GSEs include a 0.5% fee, designed to protect them from additional risk created by the COVID-19 pandemic. Fannie Mae cited “market and economic uncertainty resulting in higher risk and costs” in its letter to lenders.
The move was criticized swiftly and widely. A group of 20 trade organizations and public interest groups — including the American Bankers Association, the Mortgage Bankers Association, the National Association of Realtors and the National Fair Housing Alliance — called on FHFA to reverse the fee.
“This announcement is bad for our nation’s homeowners and the nascent economic recovery,” Mortgage Bankers Association CEO Bob Broeksmit wrote in a statement. “Requiring Fannie Mae and Freddie Mac to charge a 0.5% fee on refinance mortgages they purchase will raise interest rates on families trying to make ends meet in these challenging times.”
Broeksmit continued: “At a time when the Federal Reserve is purchasing $40 billion in agency MBS per month to help reduce financing costs for mortgage borrowers to support the broader economy, this action raises those costs and undermines the Federal Reserve’s policy.”
The group estimated the fee could amount to an average of $1,400; it’s up to lenders whether they absorb the fee or pass it on to consumers.
The CEOs of Fannie Mae and Freddie Mac released a combined letter responding to the backlash, pointing out that the fee is a one-time charge rather than an increase on the annual mortgage interest rate. The fee would result in about a $15 reduction in savings per month, they said.
“Contrary to much of the criticism we have received since making this announcement, this will generally not cause mortgage payments to ‘go up.'” the letter states. “The fee applies only to refinancing borrowers, who almost always use a refinancing to lower their monthly rate.”
In their letter, the CEOs referenced the programs they have put in place to support homeowners and renters during the pandemic, including forbearance, loan modification options, moratoriums and single-family foreclosure and eviction prevention.
“This is just a fraction of the actions we have taken in coordination with FHFA to support homeowners and renters,” the letter states. “While the re-financing market remains strong, there will be delinquencies and defaults that hit companies because of COVID-19. This modest fee will help us continue helping those who are really hurting during the pandemic.”
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