The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, will delay implementation of a controversial new refinance fee until December 1, the agency has announced.
The 50 basis point fee on homeowners who refinance a mortgage backed by the government-sponsored enterprises (GSEs) was originally set to take effect on September 1. In its announcement, FHFA did not give a reason for the delay.
But the agency also announced that the new fee will not apply to refinance loans with loan balances below $125,000, nearly half of which FHFA said are comprised of lower income borrowers at or below 80 percent of area median income. The fee will also not apply to the GSEs’ affordable refinance products, Fannie’s HomeReady and Freddie’s Home Possible.
The agency emphasized that the new 0.5 percent fee is necessary to cover anticipated costs of at least $6 billion at the GSEs due to efforts to protect borrowers and renters during the COVID-19 pandemic. FHFA said it had allowed Fannie and Freddie to offer forbearance on multifamily and single-family mortgages, buy loans in forbearance, modify mortgage terms to reduce monthly payments and simplify repayment options, provide protections for tenants in properties in forbearance and provide loan processing flexibility.
The agency expects those actions to result in $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.
When it was first announced, the new “Adverse Market Refinance Fee” was opposed by the Mortgage Bankers Association (MBA), the National Association of Realtors (NAR), the Independent Community Bankers of America (ICBA), and at least 24 other organizations, including public interest groups such as the Consumer Federation of America and the National Fair Housing Alliance, though at least one economist thought it could push homeowners off the fence to buy a new home instead of refinancing their current home, thereby spurring home sales.
Most industry groups praised FHFA’s decision to delay the fee.
“Extending the effective date will permit lenders to close refinance loans that are in their pipelines and honor the rate lock commitments they made to their borrowers, ensuring that economic relief in the form of record low interest rates will continue to flow to consumers,” MBA President and CEO Bob Broeksmit said in a statement.
“We understand that the pandemic and the associated borrower assistance measures the GSEs have instituted impose significant costs on the GSEs and on mortgage servicers, and we are gratified that the revised guidelines also reflect the need to lessen the impact on borrowers with modest incomes or low loan amounts. Likewise, we support the previously announced exemption of all home purchase loans.”
Similarly, ICBA President and CEO Rebeca Romero Rainey said that extending the fee’s effective date would give borrowers and lenders time to close and fund loans currently in process.
“Further, exempting loan amounts under $125,000 — which are mainly composed of lower-income borrowers and refinance loans through Fannie Mae’s HomeReady and Freddie Mac’s Home Possible lines — will help keep those loans affordable,” Romero Rainey said in a statement.
“Like community bankers, the GSEs will incur increased expenses and losses as they work to provide relief to borrowers affected by the coronavirus pandemic. The Adverse Market Fee will help the GSEs deal with those increased expenses while protecting taxpayers.”
In an emailed statement, NAR President Vince Malta told Inman, “America’s 1.4 million Realtors are relieved that homebuyers will retain access to affordable mortgage options as the FHFA continues purchasing qualified loans in forbearance through next month. A strong housing market has helped lead our nation’s recovery process, but the U.S. economy remains in a precarious position as a result of the COVID-19 pandemic.
“With a move today in the right direction, NAR hopes the FHFA will continue working to stabilize markets and provide housing security for more Americans through this and other longer-term initiatives.”
The California Association of Realtors was less sanguine about the implementation delay, saying the fee had already caused damage.
“While delaying the implementation of this fee may be helpful to lenders, it does nothing to mitigate the damage and cost it will have on consumers because lenders have already baked the fee into higher interest rates.” said C.A.R. President Jeanne Radsick in a statement.
“C.A.R. is concerned that because lenders have already begun passing this punitive fee onto consumers, it will hinder the ability of California families to take advantage of the historically low interest rates.
“Moreover, the fee is counter to other actions taken by the government to ease the financial burden on Americans struggling during this pandemic because it is taking money right out of the pockets of homeowners when they can least afford it.”
A statement from Bankrate.com Chief Financial Analyst Greg McBride summed up reactions to the delay: “While not as good as repealing it altogether, this is certainly better than the caper they pulled when they initially announced it without any advance notice.”
Editor’s note: This story has been updated with a statement from the California Association of Realtors.