True Stories: Hybrid, eNote and RON Implementation

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Adverse-market fee was a “shock,” mortgage originators say

When Fannie Mae and Freddie Mac first announced the fee, they cited “risk” and an “uncertain economy"

It was almost midnight on Aug. 12, when Matt Rasetta received a text message from one of his loan officers: Fannie Mae and Freddie Mac had just announced a 0.5% adverse-market fee.

The owner of Superior Rate Mortgage of New England was “sweating” as he began to read the details. Rasetta had 130 deals in the pipeline and the short notice – the fee originally was set to start in less than three weeks – could mean “massive losses” if his company was forced to take a haircut because the extra cost hadn’t been quoted to customers as part of their deals.

“It was an industrywide shock when the news went out, not just from a money standpoint but from an integrity standpoint as well,” Rasetta said. “It put us in a position of not being able to offer the deal we had just sold to someone.”

The Federal Housing Finance Agency “did the right thing” on Tuesday by extending the implementation date to Dec. 1 to give everyone time to adjust, said Rasetta, who has worked in the mortgage industry for nearly two decades.

The original announcement “put tremendous stress” on mortgage companies, said Keith Binsfeld, the regional vice president of CrossCountry Mortgage. Though the delay of the fee will relieve some pressure from lenders and brokers, homeowners will still be dinged.

“The original implementation was horrifically done, the rollback – OK, that was better,” Binsfeld said. “But we’re still left with the fact that they are taxing the refinances. If it’s really an adverse market fee, why not the purchases?”

A week after announcing the new upfront fee, and five days before delaying its implementation, Fannie Mae CEO Hugh Frater and Freddie Mac CEO David Brickman issued a joint letter addressing industry criticism.

“Contrary to much of the criticism we have received since making this announcement, this will generally not cause mortgage payments to ‘go up.’” the letter states. “The fee applies only to refinancing borrowers, who almost always use a refinancing to lower their monthly rate.”

Though, of course, it means families aren’t saving as much as they would if the fee hadn’t been implemented. It will cost the average borrower about $1,400, according to the Mortgage Bankers Association.

When Fannie Mae and Freddie Mac first announced the fee, they cited “risk” and an “uncertain economy.”

CrossCountry’s Binsfeld said he expects the new fee has more to do with recapitalizing the two companies – even in the midst of a pandemic – so they can be released from conservatorship.

“Yes, there will be foreclosures in the future, but the adverse impact will be minimal because of the equity positions of homeowners and the demand for properties – every purchase loan I’m writing, they’re competing with multiple other buyers,” Binsfeld said.

The last time an adverse-market fee was implemented, during the 2008 housing crisis, the market was in a much different position, he said. The loans were not as high quality as today’s mortgages, there was an oversupply of properties on the market, and there was a large share of buyers who were flipping properties instead of living in them, he said.

Today, there’s a shortage of inventory and most people are buying homes to live in, not to become investors, he said.

“These are owners with skin in the game, who made down payments and who live in these properties,” said Binsfeld. “It’s not like the run-up to the housing crash. None of the data points to that.”

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