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New FHFA Mortgage-Refinance Fee Delayed to December 1st.

The Adverse Market Refinance Fee, announced in August 2020, was to take effect on September 1, 2020. However, in a last-minute announcement, the Federal Housing Finance Agency (FHFA) has delayed the additional fee until December 1, 2020.

The new fee will add 50 basis points, or 0.5%, to each transaction for:

  • limited cash-out refinances; and
  • cash-out refinances.

Refinance loans with balances below $125,000 will be exempt. Affordable refinance products, Home Ready and Home Possible products will also be exempt. The fee will go into effect for applicable loans purchased or delivered into mortgage backed security (MBS) pools on or after December 1, 2020.

The FHFA oversees the government enterprises Fannie Mae and Freddie Mac, thus the new fee will impact most mortgages. Since lenders package and sell their loans to Fannie Mae and Freddie Mac, the fee initially impacts the lender. However, lenders will pass the charge along to borrowers in the form of higher interest rates.

In fact, mortgage loans of all types — purchase and refinance — saw their interest rates rise in August after the additional fees were announced to take effect in September. Following the announcement that the fee will be delayed until December, interest rates fell back.

The FHFA claims the refinance fee is necessary to make up for the enterprises’ projected losses of over $6 billion due to COVID-19. This includes:

  • $4 billion in projected losses due to forbearance defaults;
  • $1 billion in losses due to the foreclosure moratorium; and
  • $1 billion in servicer compensation and other forbearance expenses.

These additional costs need to be accounted for; hence, the refinance fee. With record low interest rates, refinancing has been a saving grace for many lenders, who have needed to contend with dwindling home sales volume and reduced loan originations.

However, the FHFA’s attempt to recoup some of its losses backfired, sending interest rates higher and reducing buyer purchasing power, discouraging homebuyers and refinancers alike. This action is the opposite of what today’s low interest rates are meant to do: encourage borrowing and keep the housing market afloat.

The Mortgage Bankers Assn., a trade group for lenders, has estimated that the fee would raise costs for the typical borrower by $1,400.

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