GSEs Fannie Mae and Freddie Mac announced last week that they are raising fees for lenders on all mortgage refinances by 0.5%, an effort, the enterprises say, to protect themselves from losses on their refinanced mortgages given today's pandemic-related low interest rates.
The adjustment comes "as a result of risk management and loss forecasting precipitated by COVID-19-related economic and market uncertainty," read a statement from Freddie Mac.
The change, beginning September 1, will apply to all refinances that aren’t already in process.
The mortgage industry is weighing in on the “adverse market fee” or "market condition credit fee" introduced—under the authorization of the FHFA—by Fannie and Freddie, respectively.
The move could raise monthly mortgage rates for borrowers to the tune of $1,400 for the average consumer, according to the Mortgage Bankers Association (MBA), which added in its statement that "thousands of borrowers who did not lock in their rates could face unanticipated cost increases just days from closing."
While reaction from widespread housing advocates, mortgage experts, and lending professionals has been negative, others said claims by the “housing lobby” that the adjustment is unfair are unfounded.
The fee, intended to offset risk on refinance loans, not only is prudent, said Edward J. Pinto, Director, AEI Housing Center, “but also it would have been a dereliction of regulatory oversight not to have taken [this] action.”
He added, “To put the new 1/2 point upfront fee in perspective, mortgage rates on refinance loans have dropped nearly 100 basis points since early January 2020. The new 1/2 point fee is equal to about 13 basis points in rate, a minor impact compared to the massive drop in rates just since early January.”
Still, Maxine Waters, Congresswoman (D-California) and House Financial Services Committee Chairwoman said in a statement that she is “urging the FHFA to reverse course immediately and allow homeowners a fighting chance.”
Bankrate.com’s Chief Financial Analyst, Greg McBride, provided his thoughts as well, stating, “The FHFA should rescind this announcement and not be a roadblock to homeowners reducing their monthly mortgage payments.”
“Make no mistake," he continued. "The consumer is going to end up paying this fee. Diluting the benefit of refinancing and discouraging homeowners from doing so during the worst economic downturn in 90 years doesn’t make sense.”
The Independent Community Bankers of America (ICBA) also issued a statement suggesting the decision will “unnecessarily raise the cost of mortgage credit for community banking customers and will negatively impact the sectors of the U.S. economy that have thus far weathered the steepest economic downturn in modern history. This decision is contrary to recent legislative, regulatory, and administrative actions of Congress, the Administration, the Federal Reserve and the U.S Treasury to support consumers, and the economy.”
A message left with the FHFA's media liaison requesting further response had not been answered at time of publication. Look for updates to this story when and if a reply is received.