FHFA Tosses Extra Refinance Fee for Fannie, Freddie Loans
The Federal Housing Finance Agency has announced that Fannie Mae and Freddie Mac will no longer charge an extra refinance fee on loans starting Aug. 1.
The Adverse Market Refinance Fee was added at the end of 2020 to cover losses that were projected to occur from the pandemic. But the FHFA says Fannie and Freddie policies shielded the government-backed mortgage financing firms from severe losses, and the housing market has stayed strong. Therefore, the extra fee is no longer needed, FHFA says.
Lenders will no longer be required to pay Fannie Mae and Freddie Mac a 50-basis-point fee for mortgages they refinance, the cost of which has largely been passed down to borrowers. For example, the fee could have amounted to $1,400 in extra costs on an average $300,000 GSE-backed refinanced loan. Certain loans were exempt from the added fee.
But now that the extra fee is being eliminated, the FHFA says it expects lenders to offer some cost savings to refinancing borrowers. “The COVID-19 pandemic financially exacerbated America’s affordable housing crisis,” FHFA Acting Director Sandra L. Thompson said in a statement. “Eliminating the Adverse Market Refinance Fee will help families take advantage of the low-rate environment to save more money.”
The FHFA had anticipated billions of dollars in loan losses due to expected forbearance defaults once pandemic aid expires. But the majority of borrowers with Fannie Mae- and Freddie Mac-backed loans have already exited COVID-19 forbearance plans, the FHFA says. In April, about 2% of single-family mortgages guaranteed by Fannie Mae and Freddie Mac remained in forbearance, down from a high of about 5% in May 2020.