Lenders, brokers and others in the real estate community are pushing back against the newly instituted 0.5% “adverse market fee” on all refinance mortgages backed by Fannie Mae and Freddie Mac.
Citing risk management and anticipated losses related to COVID-19, the two government-sponsored enterprises (GSEs) were granted permission by the Federal Housing Finance Agency (FHFA) to enact the new fee. Fannie and Freddie will begin charging lenders the fee — which applies to both cash-out and rate/term refinances — on Sept. 1, and industry officials have been quick to voice their concerns.
“[This] announcement by the GSEs flies in the face of the Administration’s recent executive actions urging federal agencies to take all measures within their authorities to support struggling homeowners,” said Robert Broeksmit, president and CEO of the Mortgage Bankers Association (MBA) 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.
“Even worse,” Broeksmit added, “the Sept. 1 effective date means that thousands of borrowers who did not lock in their rates could face unanticipated cost increases just days from closing.”
With average closing times on refinances at close to 50 days, many loans already going through the process won’t be completed by Sept. 1. If the borrowers of those loans haven’t locked in their mortgage rates with their lenders yet, it’s likely that the fee’s cost would end up passed on to them.
The MBA estimated that the fee would tack on an extra $1,400 to a loan made to the average consumer.
“At a time when borrowers are utilizing refinances to strengthen their finances by taking advantage of historically low mortgage rates, now is not the time to raise mortgage rates and costs on working families,” said Scott Olson, executive director of the Community Home Lenders Association. “Congress, the Federal Reserve, and Treasury have been taking strong actions to support our economy; Fannie Mae and Freddie Mac should do the same — not make it tougher for families.”
Broeksmit questioned the GSE’s assessment of the risk picture with regards to the refinance boom, saying that “recent refinance activity … is also reducing risk to the GSEs and taxpayers.”
Dick Lepre, senior loan advisor at RPM Mortgage, agreed, calling the GSE’s citation of risk management and market uncertainty “categorically false.”
“Refis to lower rates and payments have less risk than the loans being refinanced,” Lepre said. “I can see the hit for cash-out [refinances] … but if someone is lowering their payment by refinancing to a lower rate, it is difficult to impossible to see how risk is increased. Risk is decreased. Higher fees for cash-out refinancing have been in place for years.”
Jeanne Radsick, president of the California Association of Realtors, said that the FHFA is putting its goal to recapitalize the GSEs over the needs of homebuyers.
“FHFA’s new fee on refinance loans is an attempt by the [GSEs] to take advantage of the current economic crisis to raise additional revenue, which is consistent with its past actions to increase fees during this pandemic. … To restrict access to one’s equity today when families are struggling with the COVID-19 pandemic and its related economic impacts is extraordinarily poor timing and demonstrates that the FHFA’s singular focus of expediting Fannie Mae’s and Freddie Mac’s removal from conservatorship has taken priority over their role and mission of providing affordable mortgage capital to the housing market,” she said.
“Borrowers,” Lepre echoed, “are, in effect, being asked to capitalize the GSEs.”
Broeksmit urged a swift reversal of the new policy.
“This announcement is bad for our nation’s homeowners and the nascent economic recovery. We strongly urge FHFA, which had to approve this policy, to withdraw this ill-timed, misguided directive.”
Many in the industry have also reached out to the FHFA and director Mark Calabria directly to urge reconsideration.
“Borrower unfriendly. Investor friendly by lowering early payoff probability,” wrote Lepre in a letter to Calabria. “The savings, which would have resulted in an increase in discretionary spending and helped jobs and GDP, have been redirected to the GSEs.”
Not everyone in the lending sphere has been critical of the move. Ed Pinto, director of the American Enterprise Institute’s Housing Center, defended the new fee.
“It is worth noting that a 30-year fixed-rate, fully documented 65% loan-to-value cash-out refinance loan has default proclivity under stress that is the same as a 91-95% loan-to-value purchase loans with the same metrics,” Pinto said. “And the GSEs’ currently guarantee cash out loans up to 80% loan-to-value.
“There are many reasons refinance loans are so risky, but first and foremost is that, unlike purchase transactions, there is no arm’s length purchase price to benchmark to. Thus it is all too easy to ask: ‘What do you need the value to be?’
“The new half-point market adjustment fee is not only appropriate,” claimed Pinto, “but it would have been a dereliction of regulatory oversight not to have taken action.”