On August 12th Fannie Mae and Freddie Mac
made an announcement for a new adverse market refinance fee set to go into effect for loans delivered after September 1st. The fee is “supposed to” help supplement the projected losses both Fannie Mae and Freddie Mac are anticipating experiencing this year due to the current economic uncertainty from COVID19.
The fee would be a 0.5% hit to pricing of the loan amount that will be applied to all refinances. This is the equivalent to a $2,000 increase in closing costs on a $400,000 loan, or an interest rate increase of approximately 0.125% to 0.25%.
Those of us in the mortgage industry were surprised and upset to find this hit was added over night and affected a lot of loans already in process in August. Rates that we had already locked were now going to have a 0.5% hit. As a company we decided to not pass this along to our clients and were going to bear the cost with no additional charges to those already in process.
The mortgage industry was in an uproar over the surprising announcement and decided to call on the Federal Housing Finance Agency (FHFA
) to reverse the decision. Our lobbying efforts were partially successful. The FHFA
announced that they advised Fannie Mae and Freddie Mac to postpone the refinance tax going into effect until December 1st
. The delay was to give sufficient notice of the new fee to lenders and borrowers. Both enterprises agreed to postpone in order to not impact loans right away.
My personal opinion is that this was an orchestrated move. If they would have announced that this fee would start in December everybody would be upset. But if they announce it starts in September, then postpone it until December, everybody is happy about it. Refinances make up 2/3 of all mortgage transactions so this fee is a huge win for Fannie and Freddie because it will mean an enormous amount of money back in their pockets. Not only is this new fee a conspiracy for more money, it also could not have come at a worse time as we are in the middle of a pandemic and trying to come out of recession.
With the new fee set to hit refinances delivered after December 1st
. Keep in mind that this fee is based on the delivery date to Fannie Mae. Loans that close in the 2nd
half of November will be delivered in December. We will begin to see it affect refinance transactions that start in October. I highly
recommend locking in your refinance in September or first part of October before lenders add back this 0.5% fee to the rate sheets.
For those of you waiting for a rate drop it’s a true that we don’t know if rates are going to go lower, but it is a fact that when this fee is added back in refinance rates will go higher by about 0.125% to 0.25%. When you combine this hit with the risk that the election could cause interest rates to go higher I believe it is best to jump on this opportunity now before you have to incur the new fee on top of a potentially higher interest rate.
If you have been thinking about refinancing now is the time!
Give ALV Mortgage
a call today and let’s get started on running the numbers for your loan so we can lock in your interest rate before the fee goes into effect this fall.