Housing Industry Battles New Mortgage Refinance Fees
An August 12 announcement by Fannie Mae and Freddie Mac (the government-sponsored entities that buy conventional mortgages) rocked mortgage lenders: From September 1, a new 0.5% fee will apply to all home loan refinances. And that’s bad news for borrowers.
Refinancing is the process of exchanging one existing loan for another. In the case of a mortgage loan, borrowers can apply for a new home loan with a lower interest rate and save money from there.
Refinancing has been particularly popular in recent months, with mortgage rates reach record levels. But Fannie Mae and Freddie Mac’s new refinancing fees suddenly make it a less attractive option. Although the two entities do not lend directly to borrowers, it is usually the borrowers who will be stranded with these additional fees, as the lenders will clearly seek to pass them on. In total, the average refinanced home loan will cost an additional $ 1,400 once the 0.5% fee kicks in.
But shortly after Fannie Mae and Freddie Mac’s announcement, the National Association of Mortgage Brokers launched a campaign to waive the new fees. So far, the Mortgage Bankers Association has joined its ranks, along with various other members of the housing industry (the American Bankers Association, the American Land Title Association, and the Center for Responsible Lending, to name a few. only a few). Specifically, these entities are asking the Federal Housing Finance Agency, which was initially responsible for approving the new policy, to reverse this decision and get rid of what are termed untimely fees.
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Why did Fannie Mae and Freddie Mac impose new fees to start?
From a lender’s perspective, now is the time to refinance mortgages. Many Americans are in dire financial straits due to the COVID-19 pandemic and the recession that followed. As such, imposing these fees is a safeguard for Fannie Mae and Freddie Mac.
But unfortunately, it is the lenders and individual borrowers who risk being harmed if these charges are actually applied. Mortgage lenders not have to pass this 0.5% charge on to borrowers, but if they don’t, they’ll have to eat it themselves. And the point is that most lenders will seek to pass on these costs, making refinancing a more expensive prospect than it should be.
What about borrowers in full refinancing?
Those who applied to refinance a mortgage but have not locked in their new rates risk being affected by new fees from Fannie Mae and Freddie Mac if their loans do not close by September 1. Meanwhile, those who are interested in refinancing but have not yet started the process may be out of luck if the fees do indeed stick. After applying, concluding a mortgage refinance can easily take weeks. Thus, owners who have not yet started the ball rolling could have a nasty surprise.
For now, we’ll have to wait and see what happens with the new Fannie Mae and Freddie Mac fees. But it’s fair to say that refinancing could lose popularity if it is actually sustained in September.