Federal Housing Finance Agency issues half-point fee on conventional refinances

Fannie Mae and Freddie Mac (regulated by the Federal Housing Finance Agency) announced they are adding an “Adverse Market Refinance Fee” of 50 basis points that is effective on refinance mortgages delivered to Fannie Mae or Freddie Mac starting September 1, 2020.  This is a huge hit to mortgage lenders across the country.

From Freddie Mac: “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.”

From Fannie Mae: “In light of market and economic uncertainty resulting in higher risk and costs incurred by Fannie Mae, we are implementing a new loan-level price adjustment (LLPA)”

What this appears to mean is that if you have a conventional refinance that is set to close anytime or in the future, the pricing for the rate will be 0.500% higher in points/fee. For a $400,000 loan amount, the cost will be $2,000 higher in points than a purchase mortgage or than if you locked prior to this time.  A half point in fee (50 basis points) will translate to roughly 0.125 to 0.250 higher interest rate.

This also means that lenders will probably not be able to offer free rate lock extension. You need to get your rate closed prior to the rate lock expiring. If you have a refinance in process, you need to know when your lock is expiring and make sure you respond quickly to anything that is required for processing your refinance. The cost to extend a rate lock varies depending on how long your lock needs to be extended and different lenders have different pricing/policies when it comes to extension.

This hit to pricing impacts mortgages that are all ready in process. It can take weeks before a closed loan is delivered to Fannie Mae or Freddie Mac. It should not impact mortgage loans that are in process, as long as they can close before their lock expires. (The impact will still hit the mortgage lender).

Typically if there are changes to the LLPA (loan level price adjustments) like this, it’s done on mortgage loans not locked yet. This is astounding and at a 0.5% of all loan amounts, seems to be a very greedy grab. I would also say it’s very unfair to not give mortgage lenders enough time to deal with this as this hit to fee impacts loans in process now.

It’s my understanding that industry organizations are fighting this. I hope at the very least, FHFA/Fannie Mae/Freddie Mac can back off the date and set it for a reasonable time in the future. Even if they agree to this, they have shown their hands.

If you have not yet refinanced or locked your loan, I still recommend refinancing. Rates are set to trend higher with signs of inflation, market capacity and now, the Federal Housing Finance Agency’s half point “tax” on refinances. Rates are still historically low and I recommend acting quickly and apply for a mortgage asap if you haven’t already.

This price hit (LLPA) does not apply to mortgages used for purchasing homes. This does impact people who are trying to refinance and improve their finances – it’s really poor timing. I suggest that you contact your elected representatives in Congress if you are as upset as I am over this greedy move.

This is still evolving. I hope to have more (better news) for you soon! Stay tuned.

Here’s more info from Mortgage News Daily. PS: I absolutely agree with their view point that the Covid excuse is bunk for this price hit.


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