WASHINGTON–A decision by Fannie Mae and Freddie Mac to add a new “adverse-market refinance fee” of 0.5% on the mortgages they buy will “put additional pressures on credit unions,” according to NAFCU, which has joined with other trade groups in calling for reversal of the decision.
The two secondary market giants said the fee will be assessed for both cash-out and no-cash-out refinances.
“In light of market and economic uncertainty resulting in higher risk and costs incurred by Fannie Mae, we are implementing a new loan-level price adjustment,” the company stated.
In its letter, Freddie Mac cited the pandemic. “As a result of risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty, we are introducing a new Market Condition Credit Fee,” it said.
With refinance activity rising to 65.7% of total applications – posting 12 straight weeks of year-over-year growth – the fee’s effects will be felt immediately, noted one analysis.
The Cost to Consumers
That analysis stated that on a loan of $291,300 – the median home price in the second quarter – that .5% will cost lenders $1,456. The Sept. 1 sell date means some of the refi's impacted are already locked and can’t be adjusted at this point, so lenders will have to pay the fee. If the deal isn’t locked, the cost likely will be passed on to the consumer, noted the report.
The new credit fee doesn’t apply to purchase mortgage loans.
The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, issued a statement saying, “Based on their projected COVID-related losses, Fannie Mae and Freddie Mac (the Enterprises) requested, and were granted, permission from FHFA to place an adverse market fee on mortgage refinance acquisitions.”
NAFCU Response
“Fannie Mae and Freddie Mac’s decision to charge higher mortgage refinance fees will put additional pressure on credit unions as they continue to work to meet the needs of their members,” said NAFCU Executive Vice President of Government Affairs and General Counsel Carrie Hunt. “Policymakers should be working to help credit unions help their members, not strapping them with additional fees that they will have to absorb or build into the cost of the refinance. We would ask the FHFA to reverse this policy immediately to better help America’s struggling homeowners during this uncertain time.”
Mortgage Bankers Association Response
The Mortgage Bankers Association issued a statement calling the new fee “ill-timed” and said it runs counter to the goals behind one of the directives signed by President Donald Trump to support homeowners.
“Tonight’s announcement by the GSEs flies in the face of the administration’s recent executive actions urging federal agencies to take all measures within their authorities to support struggling homeowners,” the MBA statement said. “Requiring Fannie Mae and Freddie Mac to charge a 0.5% fee on refinance mortgages they purchase will raise interest rates on families trying to make ends meet in these challenging times,” it said. “This means the average consumer will be paying $1,400 more than they otherwise would have paid.”
The timing of the announcement will result in consumers who have loans already in process being faced with unexpected costs, according to the MBA.
“Even worse, the Sept. 1 effective date means that thousands of borrowers who did not lock in their rates could face unanticipated cost increases just days from closing,” the trade group said.
The MBA called on the FHFA to reverse the decision.