September 23, 2020
4 MINUTE READ
The pandemic period hasn’t been easy for the housing industry, home buyers or sellers, or anyone, really. During these unprecedented times, homeowners and lending agencies have faced their own challenges stemming from uncertainty in the market.
Earlier this year, in efforts to prevent the nation’s housing market from the unknown, the Federal Housing Finance Agency (FHFA) in partnership with Fannie Mae and Freddie Mac introduced the new Adverse Market Refinance Fee. This 0.5% fee on all mortgage refinances initially set to go into effect on September 1st, has now been postponed to December 1st – which is making for great news for homeowners all over the country – you have more time to lock in a low rate.
Here’s what you need to know about the recent changes and how they impact your position as a homeowner:
The advanced market refinance fee would add an additional 50 basis point fee to all mortgage refinances. In efforts to protect households in the lower economic brackets from further financial problems during the pandemic recovery period, refinance loans under $125,000 would be exempt from the fee’s requirement, as well as Home Ready and Home Possible refinancing products.
However, this additional 0.5% fee would still have increased the expenses of households all around the country – many of which are struggling now more than usual as the country combats unemployment and an economic downturn.
Moreover, the September 1st date would catch homeowners who are yet to lock in their rates off guard. As initially announced, the fee’s reconstruction was poised to cause long term financial interruption.
While the downsides of the fee were acknowledged by all sides, Fannie Mae, Freddie Mac, and the FHFA all stood behind the necessity of the decision. In a statement, the FHFA noted that pandemic-related losses could reach a minimum of $6 billion for the nation’s GSEs.
Between a projected $4 billion in forbearance defaults, $1 billion in foreclosure moratorium losses, and another $1 billion in compensatory expenses, the market needed the fee for stability.
Even though the decision to implement this fee is geared towards supporting the losses due to the pandemic’s various housing aid programs, the FHFA, Freddie Mac, and Fannie Mae all faced widespread opposition. Homeowners and institutions alike refuted the upcoming adverse market refinance fee.
Meanwhile, prominent industry groups began actively speaking out against this fee being charged during such turbulent times.
The President of the National Association of Mortgage Brokers, Rocke Andrews, said “By adding this 1/2 percent tax on all refinance transactions in the midst of a pandemic, the FHFA and GSEs are harming our economic recovery… This mistake in policy needs to be reversed immediately.” The NAMB even released a petition against this fee which was backed by over 17,000 advocates.
The CEO of the Mortgage Bankers Association, Bob Broeksmit, issued a statement saying, “This announcement is bad for our nation’s homeowners and the nascent economic recovery. We strongly urge the FHFA, which had to approve this policy, to withdraw this ill-timed, misguided directive.”
These and many others added to the conversation that finally sparked a change in policy by the FHFA.
On August 25th, the FHFA announced that the adverse market refinance fee would be postponed until December 1st. This decision pauses the charge by three months, allowing homeowners to tap into many benefits that would have otherwise turned to hardship had the fee been charged on September 1st.
The decision to hold off on the fee was gladly embraced by the housing industry. As noted by the MBA, the delay would help homeowners refinance their mortgages that are currently in-process – and would have otherwise been cut short – while also letting lending officers honor the previously-made promises to apply the record low interest rates.
Recently, mortgage rates have dipped to record lows time and time again. In early September, the lowest rate was achieved at 3.10%. If the fee would have been charged to mortgage refinances on September 1st, homeowners that had not yet finalized the process would have lost the chance to lock in this astounding rate and reduce their expenses for the long-term.
With many homeowners betting on this rate, the sudden alteration would have disrupted and increased the living costs for families all around the country. But, now that it’s happening in December, homeowners will have the chance to fully establish their loans and secure their rates before it kicks in.
By paying the fee, homeowners are actually expanding the capacity for lending into the future. This period has been tough on lending agencies, and the advanced market refinance fee will be supporting mortgage lenders in providing financial aid and flexibility to the homeowners that are in need during these difficult times.