August 23

Fannie Mae and Freddie Mac ‘adverse market fee’ may cost you more to refinance

Fannie Mae and Freddie Mac have announced a new refinance fee, effective September 1, and no one is happy about it.

While the Federal Reserve is trying to help reduce the cost of buying or refinancing a home by buying $40 billion worth of mortgage-backed securities each month, Fannie and Freddie are increasing the cost of refinancing.

As of September 1, homeowners refinancing Fannie or Freddie backed mortgages will be subjected to a 0.5% refinance fee. On a $250,000 loan, that amounts to $1,250. While they say that the banks are free to bear this cost themselves, most believe it will be passed on to consumers, either in the form of increased loan fees or a higher interest rate.

The Federal Housing Finance Agency (FHFA), which regulates Fannie and Freddie, said they requested the changes due to projected losses from COVID-19.

Fannie and Freddie don’t make loans. They buy loans, wrap them into securities, and sell them to investors. They guarantee repayment of principal and interest to those investors. These payments are due even when homeowners are delinquent. Or, as is the case right now, when they have been given forbearance.

Forbearance has decreased their cash flow. However, about a fourth of the people who were granted forbearance have already resumed making their monthly payments.

It appears that no one is happy with the new fee. Homeowners certainly aren’t happy. The administration is not happy. And lenders are not happy. They see this as reducing the number of refinances they will do – which reduces their income from their normal lending fees.

Public interest groups and trade organizations are pushing FHFA to reverse the decision and eliminate the fee.

We’ll have to wait to see if they’re successful.


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