UPDATE: Since publishing this post this morning, another major bank announced a significant increase in their extension fees as noted below.
If you obtain a new mortgage next year for a refinance or purchase (for any purpose) and it is securitized by Fannie Mae or Freddie Mac or insured by FHA, you're helping to pay for the recently passed payroll tax cut bill.
From the FHFA:
“On Dec. 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011. Among its provisions, this new law directs the Federal Housing Finance Agency (FHFA) to increase guarantee fees charged by Fannie Mae and Freddie Mac( the Enterprises) by no less than 10 basis points from the average guarantee fees charged by these companies in 2011 on single-family mortgage-backed securities. This requirement is effective immediately, meaning that the average guarantee fees charged in 2012 need be at least 10 basis points greater than the average guarantee fees charged in 2011 and that this increase be remitted to the U.S. Treasury, rather than retained as reserves by the Enterprises…. FHFA will announce plans for further guarantee fee increases or other fee adjustments that will then be implemented gradually over the two-year implementation window, taking into consideration risk levels and conditions in financial markets…"
What I'm seeing from some of the various banks and lenders we work with ranges from announcements they're increasing their extension fees 0.25% 0.40% across the board and other lenders announcing fee increases to up to 0.5% to take effect in the next couple weeks.
On a $400,000 loan, a 0.5% fee to interest rate increase means you'll be paying $2000 more for the same rate once the fee increases go into place!
With a rate lock extension, currently the charge from one bank who has announced the price increase, 7 days cost 0.125% and now with the 0.4% add, the 7 day extension cost 0.525%. Where an extension before would have cost $500 on a $400,000 loan, now it will cost $2,100 for the same seven days! This will force many borrowers to consider longer rate locks in order to avoid such a hefty penalty.
What can you do?
If you are considering refinancing your mortgage, contact your local mortgage professional to discuss current rates and securing your lower (pre-fee) rate today. If your home is located anywhere in Washington state, I can help you.
If you are buying a home and are in contract, but not yet locked, you may want to investigate locking.
Whether you are buying or refinancing your home, make sure that the lock is for a long enough period to avoid possibly higher extension fees.
Different lenders have different guidelines and ways they're implementing their fee structures. One of the benefits of working with a correspondent lender, like Mortgage Master Service Corporation, is that I work with several different banks and lenders and can filter out who is offering the most competitive price for your program at the moment you are ready to lock.
If you would like a rate quote for your home located in Washington, click here or contact me.