The Federal Housing Finance Agency has ordered Fannie Mae and Freddie Mac to postpone the introduction of a new fee to cover losses caused by the coronavirus pandemic.
Fannie Mae and Freddie Mac announced earlier this month that they would be charging lenders a 0.5% fee for all refinancing from September 1st. Now the two mortgage giants will wait until December to implement the fee.
In addition, the FHFA has instructed Fannie and Freddie to limit which refinances the fee is charged for. Loans with a balance under $ 125,000 are exempt. Nearly half of these are held by lower-income borrowers, according to the FHFA. The fee also does not apply to loans made through Fannie Mae's HomeReady and Freddie Macs Home Possible Affordable Refinance Programs, aimed at low-income Americans and first-time homeowners.
"While this isn't as good as picking it up overall, this is certainly better than the caper they pulled when they originally announced it without notice," said Greg McBride, financial analyst at Bankrate.
With the announcement of the delay, the FHFA provided more background information on why the fee was introduced. The proceeds from the fee will be used to cover projected losses of $ 6 billion to Fannie and Freddie. These losses include an estimated $ 4 billion in credit losses due to forecast forbearance defaults, $ 1 billion in foreclosure moratorium losses, and $ 1 billion in service compensation.
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"The FHFA has a legal responsibility to ensure the safety and health of businesses through regulatory requirements," the agency said in its announcement, adding that Fannie and Freddie's charters "require reimbursement of expenses through revenue."
It's not the first time Fannie and Freddie have made such a fee. In 2007, Fannie Mae added 0.25% to all mortgages she bought from lenders in response to the burgeoning global financial crisis.
Following the announcement, the refinancing fee was quickly criticized by lenders, consumer advocates, and lawmakers. A group of 20 trade organizations and public interest groups urged the FHFA to reverse the fee, arguing that doing so would run counter to White House measures to encourage homeowner assistance. The group included the American Bankers Association, the Credit Union National Association, the Mortgage Bankers Association, the National Association of Realtors, the Center for Responsible Lending, and the National Fair Housing Alliance.
A senior White House official told the Wall Street Journal that the Trump administration "has serious concerns about this action" and would review the fee.
Some pointed to inconsistencies in the timing and structure of the fee. NerdWallet home and mortgage expert Holden Lewis said it was "strange that they would not collect the fee for buying mortgages" if the fee were introduced due to economic uncertainty. A FHFA spokesman said the fee is limited to refinancing as the agency does not want to impact the property market.
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Others criticized the original timing of the introduction of the fee. "It doesn't make any sense," Bob Broeksmit, president and CEO of the Mortgage Bankers Association, told MarketWatch earlier this month. "The implementation schedule is deliberately criminal and absurd."
The surprise announcement of the fee earlier this month prompted many lenders to raise interest rates. Closing loans can take many weeks, which means that in cases where borrowers had already set an interest rate, lenders would have to cover the fee.
If the fee rolls out in December, lenders will likely include the additional cost in the interest rates they offer homeowners to refinance. This could dampen the high refinancing volume in recent months, which was fueled by record-low mortgage rates.
"With this artificial hike, a bigger drop in interest rates is required to make the borrowers' refinancing worthwhile," said Broeksmit.