The FHFA's refinancing fee has been delayed. But December is closer than you think
Mortgage rates have suddenly risen in the past two weeks.
With no interest rate locked, borrowers watched as discounts and savings were lost.
Why did prices go up? The answer included a new refinancing fee that was due to start on September 1st.
The fee has since been postponed until December 1st.
However, remember that refinancing will take at least a month. And refinancing rates are likely to rise before the fee goes into effect.
Homeowners who want the lowest refinance rate possible should apply 2-3 months before December 1st – which is pretty much the case right now.
Find a Low Refinance Rate Now (Aug 28, 2020)
What is the "negative market refinancing fee"?
On August 12, Fannie Mae and Freddie Mac announced that they would be setting a new fee for all conventional refinance loans.
The fee is 0.5% of the loan amount.
That is, if you had a $ 200,000 refinancing, the new fee would add up to an additional $ 1,000.
Closing and delivering refinances takes a long time. Therefore, a start date on September 1st meant that the fee had already been added to ongoing refinancing.
Originally, the fee was supposed to start on September 1st – meaning it would apply to any loan that hasn't been delivered to Fannie or Freddie by that date.
However, since it takes a long time to complete and complete the refinancing, the fee was effectively added to the loans that were already in process before September 1st.
However, Fannie and Freddie have since changed the rules (and postponed the start date for the fee) in response to strong industry backlash.
Changes to the refinancing fee of 0.5%
On August 25, the FHFA announced two changes to the new refinancing fee.
The start date has been postponed from September 1st to December 1st. The new fee does not apply to loan amounts less than $ 125,000 or to HomeReady and Home Possible loans
This is good news for borrowers. This means prices may stay a little lower and a little longer.
It also means that borrowers who have already been in the refinancing process may not see their interest rates rise because of the fee.
Mortgage News Daily 's Matthew Graham said the cost of borrowing on loans currently in the pipeline could be adjusted in favor of borrowers.
But each lender will treat their own loans differently. So speak to your mortgage company if you are in a refinancing phase.
Also note that loans must be delivered to Fannie or Freddie before December 1st to avoid the fee.
That means refinancing needs to be completed much earlier (in October or early November) so plan your refinance accordingly.
Start your refinancing. Find a Low Price Today (Aug 28, 2020)
The new fee could increase refinancing rates by 0.125% or more
When the new fee goes into effect, borrowers will not pay it directly.
Instead, it will likely be billed to borrowers in the form of higher interest rates.
“The fee is 50 basis points (0.50%) in relation to PRICE, which is roughly 0.125% in relation to the interest rate,” says Graham.
However, others have estimated that refinancing rates could increase by up to 0.375% on average at the time the fee takes effect.
In either case, this is a significant difference in the refinancing rates for borrowers.
For those planning to refinance in the near future, it makes sense to get the ball rolling as soon as possible.
The sooner you start refinancing, the better your chances of closing the loan and delivering it to Fannie Mae or Freddie Mac before the fee goes into effect again.
Find a Low Refinance Rate toda (Aug 28, 2020)
Will all refinancing be affected by the new fee?
The reverse market refinancing fee only applies to refinancing loans sold to Fannie Mae and Freddie Mac.
In other words, it applies to "conventional" refinancing loans.
However, other types of mortgages could be indirectly affected.
In fact, the initial announcement set higher interest rates on purchase and refinance loans, including some that are not intended for sale to Fannie Mae and Freddie Mac.
Those who did not set interest rates suddenly faced higher interest costs.
In the coming months, it can therefore be assumed that conventional refinancing will not be the only type affected by rising interest rates.
No refinancing fee for loans under $ 125,000
Good news from Fannie and Freddie's recent announcement is that the refinance fee is not applied to loans below $ 125,000.
Note that this is based on the loan balance – not the home value.
So, if your home is worth well over $ 125,000, but you've paid back much of the balance, you may be refinancing less than $ 125,000 and the fee won't affect you.
In addition, the fee will not be charged to those refinancing a Freddie Mac Home Possible loan or a Fannie Mae HomeReady loan.
Why was a new fee developed?
We have been facing the COVID-19 economy for months. Around 55 million people have applied for unemployment and lenders have had to adjust many of their policies to accommodate the added uncertainty.
But has something new happened to justify this additional fee?
Freddie Mac said the new fee was required "because of the risk management and loss forecasting generated by the economic and market uncertainty associated with COVID-19."
Fannie Mae stated that the fee is being added "given the market and economic uncertainty that leads to higher risk and higher cost".
However, on August 25th there was a different answer.
According to the Federal Housing Finance Agency (FHFA) – the regulator of Fannie Mae and Freddie Mac – the new money was "necessary to cover corporate COVID-19 projected losses of at least $ 6 billion".
"In particular," according to the FHFA, "the measures companies have taken to protect tenants and borrowers during the pandemic are conservatively expected to cost companies at least $ 6 billion and could be higher depending on the path of economic recovery . "
This refers to aid packages that were passed during COVID-19 that enabled borrowers to skip mortgage payments without penalty and prevented lenders from taking out criminal loans.
But that amount is a fraction of the $ 109.5 billion in profits that Fannie and Freddie put into the treasury even after repaying bailouts received during the 2008 real estate crisis, according to ProPublica.
Anyway, it seems like a good idea to us to use a small percentage of the profits of the last few years to help homeowners with a global pandemic.
Will Congress stop the new fee before it goes into effect?
The disadvantageous market refinancing fee is now set to begin after the November elections.
Could the election results have any impact on whether or not the fee actually comes into effect?
That is not sure. Both Congresswoman Maxine Waters (D-CA), Chair of the House Committee on Financial Services, and Congressman Wm. Lacy Clay (D-MO), Chair of the Housing, Community Development and Insurance Subcommittee, reject the new indictment.
If the resistance to the fee is strong enough, an investigation into the fee and an attempt to stop it could possibly be made. However, there is no guarantee that this will happen.
What to do if you want to refinance
Interest rates are still near record lows – below 3% in many cases. This is basically unknown in the mortgage world.
Interest rates are likely to rise as the start of the new refinancing fee approaches. However, this is just one of the many, many factors that can affect mortgage and refinance rates.
If the economy really does recover anytime soon, regardless of what happens to the refinancing fee, rates could go up. On the other hand, they probably won't be much lower than they are now.
So for borrowers looking to refinance at record low interest rates, it makes sense to start sooner rather than later.
Check your new plan (August 28, 2020)