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With mortgage rates still on historical lows, it may seem like a good time to refinance. Kick off September 1sthowever, the cost of refinancing a mortgage goes up because of economic risks associated with Covid-19.
Both Freddie Mac and Fannie Mae have announced a new mortgage rate of 0.5%. The fee comes when mortgage refinancing is accelerated due to lower interest rates. Fannie Mae calls it a Form for unforgiving market. In loan letter (LL-2020-12) Fannie Mae said the compensation was in light of “market and economic uncertainty, which resulted in higher risks and costs incurred by Fannie Mae.”
On the same day, Freddie Mac announced a Market Condition Credit Cost in Price. Freddie Mac attributed the new 0.5% fee to Covid-19: “As a result of risk management and loss calculation precipitated by COVID-19 related economic and market uncertainty, we are introducing a new market fee credit fee.”
The new fee applies to both cash out and no mortgage refinancing for money. It does not apply to certain mortgages for building conversion. The fee also does not apply to refinances for mortgages not sold to Freddie Mac and Fannie Mae or mortgages used to buy a home.
Some have wondered why the refinancing fee, when it comes to economic uncertainties due to Covid-19, does not also apply to home mortgages. One possible explanation is that Freddie and Fannie have determined that mortgage refinancing presents risks that are not present in home loan loans. This may be the case, for example, for those who refinance to reduce monthly payments, withdraw money, or both, while potentially experiencing unemployment or other adverse economic consequences due to the pandemic.
This is not the first time that additional fees have been added due to poor economic conditions. During the financial crisis more than a decade ago, Fannie Mae took a charge 0.25% fee on all mortgages.
The new compensation fee is substantial
The extra costs are substantial for homeowners who want to take advantage of lower mortgage rates than to withdraw money from their home. The refinancing fee adds $ 500 for every $ 100,000 refinanced. The fee costs the average consumer $ 1,400 in additional fees, according to to the Association of Mortgage Bankers. Costs are likely to flow to consumers as increased fees as increased mortgage rates.
The new fee comes when Republicans and Democrats are locked up in a battle about another round of incentives. Negotiators for both sides ended talks more than a week ago, and the Senate has continued until after Labor Day. Earlier this month, President Trump took several executive actions aimed at provisioning additional unemployment benefits, relief for student loan repayment, an eviction moratorium and a payment tax holiday.
However, for those who refinance a mortgage, the additional fee could provide many of the incentive benefits that Mr. Trump implemented. The fee for refinancing could also increase the value of a sustainability second stimulus control and is in violation of the Fed’s efforts to maintain rates repurchasing mortgage backed securities.
Criticism of cattle for new refinancing
Reaction to Freddie and Fannie’s actions was swift and critical. The Association of Mortgage Bankers demanded the reversal of the fee: “This announcement is bad for the homeowners of our nation and the emerging economic recovery. We urge FHFA, who had to approve this policy, to urgently act on this wrong, to return the wrong directive. “
David H. Stevens, former commissioner of the Federal Housing Administration, described the new fee as giving consumers the “middle finger:”
Even the White House criticized the new fee. A senior White House official said in a written statement to the WSJ that the White House has serious concerns about this action, and is monitoring it. . . . It appears only to help Fannie and Freddie and not the American consumer. ”
Oopshot
While the new fee makes refinancing more expensive, reducing the interest rate on a home mortgage can still be a good deal. Interest rates remain at historic lows, which could benefit those trying to lower their rates, withdraw cash, or both.
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