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Mortgage

Who stands to lose with 50bp GSE refinance fee?

Housing industry turns against Fannie, Freddie decision to add fee to refis

piggy bank and house HW+

Fannie Mae and Freddie Mac announced they will add a 50 basis points fee to all refinances starting Sept. 1.

“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 in Price,” Freddie Mac said in a bulletin.

The housing industry was quick to react. The Mortgage Bankers Association said this GSE refinance fee will hurt Americans during a time of crisis.

“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,” the MBA said. “This means the average consumer will be paying $1,400 more than they otherwise would have paid.”

The National Association of Realtors also reacted, calling the GSE refinance fee “the absolute wrong policy at the wrong time.”

“It is especially troubling since the GSE’s use their profits from refinances to support homebuyers in underserved markets-meaning those communities already suffering the most will be harmed the most by this action,” NAR President Vince Malta said.  “Home values and residential real estate are a rock for the American economy right now.  We should do everything we can to lower costs for households during this crisis, not make homeownership more expensive.”

The fee assessed by the government sponsored enterprises adds a 50 basis point increase to the refinance mortgages it purchases, but the mortgage giants don’t charge borrowers directly since they don’t originate loans. This fee is placed on the lender, which then has the option of passing on the charge to the borrower or eating the cost.

If the refinance fee is ultimately passed on to the borrower, and extended through the life of the loan, it would add about 10 basis points, or 0.1%, to the interest rate of the loan.

But this also comes at a time when interest rates are hitting record lows. Earlier this week United Wholesale Mortgage announced a 30-year conventional rate of 1.99% (for some borrowers). The latest Freddie Mac Primary Mortgage Market Survey shows average mortgage rates edged up this week, but remain below the 3% mark at 2.96%.

One broker pointed this out in HousingWire’s slack community:

“[There’s] some short term pain, especially for borrowers already in the pipeline,” Mortgage Broker Jason Barlow said. “We’ll adjust (to the new ‘tax’) – at the end of the day, rates are still extraordinarily low, so [there are] lots of homeowner benefits to be had.”

While the housing market is seeing strong profit margins and high demand for purchase and refinance originations, in today’s unique economic chaos brought on by COVID-19, it is also seeing a spike in delinquencies.

The percentage of accounts with mortgage loans in “financial hardship” was 6.79% in June, according to a consumer credit snapshot by TransUnion. The report defines accounts with deferred payments and forbearance programs as those in financial hardship.

Back in April, 6.1% of mortgages were delinquent by at least 30 days or more, marking the nation’s highest overall delinquency rate since January 2016, according to a report by CoreLogic

Meanwhile, some people in the industry are calling the new fee a money grab by the GSEs.

“The new 0.5% fee being implemented by the Federal Housing Finance Agency – Fannie Mae and Freddie Mac’s regulator – on mortgage refinancing transactions delivered to the agencies beginning September 1 doesn’t pass the smell test,” Bankrate.com Chief Financial Analyst Greg McBride said. “The irony is striking – the Federal Reserve is effectively printing money to buy government guaranteed mortgage backed securities in order to keep markets functioning, drive down mortgage rates, facilitate refinancing, and put monthly savings into consumers’ pockets. And now FHFA wants to grab that savings from the consumer and put it into Fannie and Freddie’s coffers.”

In the second quarter, Fannie Mae reported an earnings decrease of 26% year-over-year due to a loss in fee revenue while Freddie Mac saw its earnings rise by 18%. But despite Fannie Mae’s decrease, both companies still reported a positive net income at $2.55 billion for Fannie Mae and $1.78 billion for Freddie Mac in Q2.

Pushing back on the announcement, the housing industry is calling on Fannie Mae and Freddie Mac to retract the fee.

“The Community Home Lenders Association calls on Fannie Mae and Freddie Mac to withdraw the half point fee they announced yesterday on refinance mortgages,” CHLA Executive Director Scott Olson said. “At a time when borrowers are utilizing refinances to strengthen their finances by taking advantage of historically low mortgage rates, now is not the time to raise mortgage rates and costs on working families.”

The FHFA explained that this move came at the request of the GSEs due to the projected losses the companies, and ultimately the American taxpayer, could experience due to the pandemic.

“Based on their projected COVID-related losses, Fannie Mae and Freddie Mac requested, and were granted, permission from FHFA to place an adverse market fee on mortgage refinance acquisitions,” an FHFA spokesperson told HousingWire.

And in a podcast interview with HousingWire, MBA President Bob Broeksmit called on FHFA Director Mark Calabria to rescind the fee.

“We are stunned and disappointed beyond belief that such a move would be taken in complete secrecy without any consultation with the industry,” Broeksmit said. “We call on Director Calabria to immediately rescind it, and let’s sit down and talk about any legitimate needs for pricing.”

HousingWire reached out to Fannie Mae, which has not responded to requests for comment. This story will be updated if the company responds.

Comments

  1. I am OPPOSED to this 50bps fee in the midst of a pandemic when the administration claims to be working to get relief and stimulus to the struggling economy. It is unconscionable.

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