In a move to assist families reduce their housing costs, the Federal Housing Finance Agency (FHFA) has announced that effective August 1, 2021, Fannie Mae and Freddie Mac (the GSEs) will eliminate the Adverse Market Refinance Fee for loan deliveries. Lenders will no longer be required to pay the GSEs a 50-basis point fee when they deliver refinanced mortgages. The fee was designed to cover losses projected as a result of the COVID-19 pandemic.
The success of FHFA and the GSEs' COVID-19 policies reduced the impact of the pandemic, and were effective enough to warrant an early conclusion of the Adverse Market Refinance Fee. FHFA's expectation is that those lenders who were charging borrowers the fee will pass cost savings back to borrowers.
"The COVID-19 pandemic financially exacerbated America's affordable housing crisis. Eliminating the Adverse Market Refinance Fee will help families take advantage of the low-rate environment to save more money," said FHFA Acting Director Sandra L. Thompson. "Today's action furthers FHFA's priority of supporting affordable housing, while simultaneously protecting the safety and soundness of the Enterprises."
A majority of GSE borrowers have successfully exited COVID-19 forbearance. In April, approximately 2% of single-family mortgages guaranteed by the GSEs remained in forbearance, down from a high of approximately 5% in May 2020.
The Adverse Market Refinance Fee was necessary to cover projected COVID-19 losses of at least $6 billion at the GSEs. Specifically, the actions taken during the pandemic to protect renters and borrowers are conservatively projected to cost the GSEs at least $6 billion, and were projected to be higher depending on the path of the economic recovery, as expenses accounted for included: $4 billion in loan losses due to projected forbearance defaults; $1 billion in foreclosure moratorium losses; and $1 billion in servicer compensation and other forbearance expenses.
“Santa Claus has come early for homeowners looking to refinance their mortgages,” said Greg McBride, CFA, Chief Financial Analyst for Bankrate. “The fee had often resulted in an increase of 1/8 of a percentage point in rates, which was enough to siphon $20 per month in potential savings out of the pockets of borrowers with a $300,000 loan.”
“I commend FHFA Acting Director Thompson for her prompt and steadfast leadership in reversing the adverse market fee on July 16th, which is estimated to save homeowners thousands of dollars in additional costs associated with refinancing and will ensure that more homeowners can fully benefit from affordable refinance options," said Rep. Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services. "It is my hope that struggling homeowners can soon leverage the assistance Congress provided through the Homeowner Assistance Fund in the American Rescue Plan to take full advantage of the low-interest rate environment to lower their housing costs, especially as millions of homeowners remain behind on their mortgage payments."
Waiving the Adverse Market Refinance Fee comes at a time when mortgage applications in both the purchase and refi markets are up, as mortgage rates continue to drop, thus setting the table for homebuyers to jump into the market.
This week, mortgage rates continued to fall below the 3% mark, with the 30-year fixed-rate mortgage (FRM) dropping this week to 2.88%, down from the previous week when it averaged 2.90%, according to Freddie Mac’s latest Primary Mortgage Market Survey (PMMS).
And after a few weeks of declines, mortgage applications increased 16% over the previous week, according to the latest Weekly Mortgage Applications Survey from the Mortgage Bankers Association (MBA) for the week ending July 9, 2021.
MBA President and CEO Bob Broeksmit said, “MBA applauds Acting Director Sandra Thompson’s decision to eliminate the Adverse Market Refinance Fee. We have called on FHFA to rescind this policy and appreciate that they have reviewed the data and been responsive to our request. With less than 2% of GSE loans in forbearance and continued home price appreciation resulting in significant borrower equity, there is no need for the fee."
“This is great news for homeowners who are, or have been, thinking about refinancing their mortgages,” said Robert Humann, Chief Revenue Officer at Credible.com, a company whose website helps borrowers compare their mortgage loan rate options. “On the heels of this announcement, rates dropped on Friday to a five-month low. By removing the fee and with interest rates declining, more homeowners are expected to cash in to either pay off higher interest rate debt or lower their mortgage payments.”