WASHINGTON–In a move welcomed by both credit union trade groups, the Federal Housing Finance Agency (FHFA) has directed Fannie Mae and Freddie Mac to delay the implementation date of their Adverse Market Refinance Fee until Dec. 1. As CUToday.info reported earlier, the 50-basis-point fee was previously scheduled to take effect Sept. 1, 2020, and has been the subject of significant pushback from numerous groups.
The FHFA also announced Fannie and Freddie will exempt refinance loans with loan balances below $125,000, nearly half of which are comprised of lower-income borrowers at or below 80% of area median income, according to the agency, which said the affordable refinance products, Home Ready and Home Possible, are also exempt.
In announcing the controversial fee the FHFA said it is necessary to cover projected COVID-19 losses of at least $6 billion at the two secondary market giants.
“Specifically, the actions taken by (Fannie and Freddie) during the pandemic to protect renters and borrowers are conservatively projected to cost at least $6 billion and could be higher depending on the path of the economic recovery,” the FHFA said.
The agency said expenses are expected to at least include:
- $4 billion in loan losses due to projected forbearance defaults
- $1 billion in foreclosure moratorium losses
- $1 billion in servicer compensation and other forbearance expenses
NAFCU Response
“NAFCU appreciates the FHFA’s delay of the GSEs’ new policy charging higher mortgage refinance fees and exemption of certain loans,” said NAFCU President and CEO Dan Berger. “While this delay will temporarily limit unnecessary financial strains placed on credit unions and their members, the policy, once implemented, will still force credit unions to absorb new financial costs amid a recession and global pandemic. We understand the GSEs are facing financial concerns of their own, but these concerns would be better mitigated through wholesale housing finance reform as opposed to preventing credit unions from helping more members.”
CUNA Response
“We thank FHFA for the action it took today related to the proposed adverse market fee,” said CUNA President/CEO Jim Nussle. “Delaying the implementation of the fee until December will protect locked-in loans in credit union pipelines from this fee and exempting loans under $125,000 will help protect low and moderate income borrowers looking to refinance their mortgages from bearing added costs at this challenging time. This is a positive step and we appreciate it.”
CUNA noted the decision came hours after it, the American Association of Credit Union Leagues and all 35 state CU leagues wrote to FHFA about the fee’s effects on credit union refinancing.
Response From Advocacy Firm
John McKechnie, senior partner in the Washington advocacy firm Total Spectrum, said he had been working with several leagues, large credit unions and the American Credit Union Mortgage Association in the days leading up to the FHFA announcement.
“This issue definitely got the attention of the credit union community, and they pushed back hard on the fee. And with good reason—I think credit unions uniquely appreciated the adverse impact on consumers, and they certainly weren’t shy about telling policymakers to reverse course,” said McKechnie. “Well done.”
FHFA Explanation
In announcing the fee, the FHFA said it has a statutory responsibility to ensure safety and soundness at GSEs through prudential regulation.
“The Enterprises' congressional charters require expenses to be recovered via income, allowing the Enterprises to continue helping those most in need during the pandemic,” the FHFA said.
According to the FHFA, Fannie Mae and Freddie Mac provide more than $6.6 trillion in funding for the U.S. mortgage markets and financial institutions.