MBA Objects to GSE ‘Adverse Market Refinance Fee’
The Federal Housing Finance Agency yesterday authorized Fannie Mae and Freddie Mac to impose an “Adverse Market Refinance Fee”—a 50 basis-point fee on most refinance mortgages, effective Sept. 1.
Fannie Mae and Freddie Mac defended the action, saying the fee would address “risk management and loss forecasting resulting from COVID-19 related economic and market uncertainty.”
The after-hours announcements drew a strong rebuke from the Mortgage Bankers Association. MBA President and CEO Robert Broeksmit, CMB (https://www.mba.org/2020-press-releases/august/mba-statement-on-the-gses-adverse-market-refinance-fee), who said the directive undermines both Federal Reserve policy to keep rates low and the administration’s recently announced directives to support homeowners and urged FHFA to withdraw the “ill-timed, misguided directive.”
“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,” Broeksmit 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. This means the average consumer will be paying $1,400 more than they otherwise would have paid.”
Even worse, Broeksmit said, the September 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 housing market has been able to withstand many of the most severe effects of the COVID-19 pandemic,” Broeksmit said. “The recent refinance activity has not only helped homeowners lower their monthly payments, but it is also reducing risk to the GSEs and taxpayers. At a time when the Federal Reserve is purchasing $40 billion in agency [mortgage-backed securities] per month to help reduce financing costs for mortgage borrowers to support the broader economy, this action raises those costs and undermines the Federal Reserve’s policy.”
“This announcement is bad for our nation’s homeowners and the nascent economic recovery,” Broeksmit added. “We strongly urge FHFA, which had to approve this policy, to withdraw this ill-timed, misguided directive.”
The GSEs said the fees are effective for mortgages with settlement dates on or after Sept. 1.
Fannie Mae, which referred to the fee as a “Loan-Level Price Adjustment” (https://singlefamily.fanniemae.com/media/23726/display), said the fee is “in addition to any other price adjustments that are otherwise applicable to the particular transaction.” The Fannie Mae LLPA applies to HomeReady and high-LTV refinances without regard to the cap that otherwise applies to those transactions.
Freddie Mac, which calls the adjustment a “Market Condition Credit Fee in Price” (https://guide.freddiemac.com/app/guide/bulletin/2020-32), will assess the fee for cash-out and no cash-out refinance Mortgages except for Construction Conversion Mortgages that qualify for single-closing Interim Construction Financing and Permanent Financing as described in Guide Sections 4602.3 and 4602.5. For cash-out refinance Mortgages, this Credit Fee in Price will be assessed in addition to the existing Cash-out Refinance Indicator Score/Loan-to-Value Credit Fee in Price.
Freddie Mac said for refinance Home Possible Mortgages or Enhanced Relief Refinance Mortgages that are subject to a Credit Fee in Price Cap, the Market Condition Credit Fee in Price must be added to the lower of (i) the total of all other applicable Credit Fees in Price or (ii) the Cap, and is not included in calculating whether the Cap has been reached.