and Freddie Mac
will no longer charge fees for refinancing loans that were intended to offset costs associated with the pandemic.
The Federal Housing Finance Agency first announced the fees last August. Originally, a 50 basis point fee was charged for refinancing mortgages over $ 125,000 if the mortgage was provided by Fannie and Freddie.
But in April, FHFA announced that Fannie and Freddie are introducing a new refinancing option for low-income borrowers that includes a lower interest rate and lower monthly payments. The new refinancing loan product has waived the so-called “bad market” fee for all loans with balances of US $ 300,000 or less.
Fannie and Freddie are not lenders themselves – instead, they develop loan products that are then offered by lenders. They then buy these mortgages from lenders, wrap them in mortgage-backed securities, and then sell those securities to investors. Fannie and Freddie also provide guarantees to investors and advance payments, even if borrowers are in default.
The fee was first announced last August and was originally planned to be implemented in September last year. The actual implementation was postponed until December after the protest of creditors and consumer advocates. When the fee was announced, the Mortgage Bankers Association, a trade group representing lenders, said the commission would average about $ 1,400 per loan.
Last August, FHFA predicted that Fannie and Freddie would post about $ 6 billion in losses from the pandemic, including $ 4 billion in loan losses due to projected tolerance defaults and $ 1 billion in losses due to foreclosure moratorium. …
But now the FHFA has said that the success of Fannie and Freddie’s policies “reduced the impact of the pandemic and was effective enough to ensure that payments are stopped as soon as possible.”
“Removing the refinancing commission for an unfavorable market will help families take advantage of low rates to save money,” said Sandra L. Thompson, Acting Director of FHFA.
“Today’s actions advance FHFA’s priority of supporting affordable housing while protecting safety and security,” added Freddie and Fannie.
When the size of the commission was announced, FHFA immediately faced criticism from lenders and consumer advocates. A group of 20 trade organizations and community groups have called on the FHFA to abolish the fee, arguing it runs counter to the actions of the Trump administration to support homeowners. The group included the American Bankers Association, the National Association of Credit Unions, the Mortgage Bankers Association, the National Association of Realtors, the Center for Responsible Lending, and the National Alliance for Fair Housing.
“It doesn’t make sense,” Bob Braxmith, president and CEO of the Mortgage Bankers’ Association, told MarketWatch last August when the board was first announced, calling the timing of the board “deliberately punitive and absurd.”
Broeksmit also warned that lenders may decide to raise interest rates or otherwise pass the cost to homeowners applying to refinance their mortgages. Ultimately, mortgage rates continued to fall through December before hitting a record low in early January. Rates then rose steadily until early April and have dropped again since then.
Others expressed bewilderment as to why fees are only charged on refinancing loans if they were issued due to economic uncertainty, since refinancing loans are usually less risky than purchase loans because the lender has an idea of the borrower’s payment history. An FHFA spokesman at the time said it was done this way because regulators didn’t want to hurt the housing market.
Fanny and Freddie have charged similar fees in the past. Back in 2007, Fannie Mae set a 0.25% premium on all mortgages it bought from lenders in response to the global financial crisis that was just beginning to emerge.