Refinancing is set to get more expensive this fall. A new fee, known as the “adverse market refinance fee” (Fannie Mae) or the “market condition credit fee” (Freddie Mac), will be assessed to most refinance mortgage loans sold to Fannie Mae and Freddie Mac starting Sept. 1. The fee is a flat 0.5% or 50 basis points of the total loan amount, adding hundreds or even thousands of dollars to the cost of a refinance.
The new fee comes at a time when mortgage rates are falling to record-breaking lows and refinance activity is on the rise. Mortgage refinance activity last week was up by 9% from the prior week and was 47% higher than the same time last year, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending Aug. 7, 2020.
The reason for the fee is to offset higher risk due to a shaky economy, both Fannie Mae and Freddie Mac said in bulletins issued Wednesday night. Most refinances, including cash-out refinances, would be subject to the fee.
“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,” according to a statement by Freddie Mac.
New Fee Runs Counter to Fed’s Efforts to Keep Costs Down
For a borrower refinancing a $350,000 mortgage, the fee would tack on an additional $1,750. For someone with twice that mortgage, the fee would add $3,500 on a $700,000 refinance.
For some, this fee is counterproductive to efforts the Federal Reserve has made since the start of the pandemic to encourage lending activity while making loans affordable by keeping mortgage interest rates low.
“The housing market has been able to withstand many of the most severe effects of the COVID-19 pandemic,” MBA President Bob Broeksmit said in a statement. “The recent refinance activity has not only helped homeowners lower their monthly payments, but it is also reducing risk to the (government-sponsored enterprises) 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.”
Fee Also Applies to Most Specialty Loan Refinance Programs
Both Fannie Mae and Freddie Mac have loan programs designed to help a wide variety of borrowers in need. These programs have caps on the total amount of fees that can be assessed, however, the new adverse market refinance fee would apply to all of these programs, regardless of the cap:
Fannie Mae’s HomeReady refinance program is designed for borrowers facing financial challenges, and its high loan-to-value (LTV) refinance program offers a chance for borrowers making on-time payments to refinance their mortgages even if their LTV exceeds the maximum for standard cash-out refinances.
Freddie Mac’s Home Possible mortgage refinance program is for low-income homeowners, and its Enhanced Relief Refinance mortgage program was created for borrowers who can’t refinance because of a drop in property values.
The only loans that are exempt from the new fee are home loans that qualify for single-closing interim construction financing and permanent financing, which is one mortgage for borrowers who are building new homes. This end-to-end loan covers buying the land, through the construction phase into the permanent home loan.
What You Should Do If You Want to Refinance
Despite the new fee, some borrowers will still be able to save money on their monthly mortgage payments, as well as the total interest paid on their loans, by refinancing. Mortgage rates are currently tracking below 3%, which puts nearly 18 million people in line to save money by refinancing, according to Black Knight, a mortgage technology, data and analytics provider.
Along with the new fee announced on Wednesday, there are closing costs that should be factored into your decision. Typically, these costs are about 2% to 3% of your total loan amount. Closing costs usually include title and insurance fees, appraisals, application fees and, in some areas, attorney fees.
Other things to consider before you refinance is whether you plan on moving. If you’re going to sell your home within a few years, you likely won’t save enough money refinancing to make up for the amount you spend in closing fees.
Finally, make sure your credit score is high enough to snag the interest rate you need to save money. Although many lenders are advertising sub-3% rates on 30- and 15-year mortgage refinances, usually only borrowers with above average credit scores (in the 700 and above range) will qualify.
Read the complete article online @ https://www.forbes.com/sites/advisor/2020/08/13/your-mortgage-refinance-could-costs-thousands-more-thanks-to-new-fee/#19535fa36ef7