Signage is on Tuesday, October 1, 2019 outside the Freddie Mac headquarters in McLean, Virginia, US.
Andrew Harrer | Bloomberg | Getty Images
Consumers will have to pay more to refinance their mortgages after Fannie Mae and Freddie Mac announced they were raising fees for lenders on the loans.
The change is designed to protect the two entities from the additional risk posed by the coronavirus pandemic. In a letter to lenders, Fannie Mae specifically mentioned “market and economic uncertainties that result in higher risks and costs.”
The price adjustment adds 0.5% of the loan amount to the cost to the consumer. That amounts to $ 1400 on the average mortgage generated today. It will start in September, which means that it will in principle apply to all refinances that are not already in processing.
The move was met with strong criticism from the mortgage sector, seen as a blow to the one sector of the economy that is booming during the pandemic.
“This announcement is bad for our nation’s homeowners and the emerging economic recovery,” Bob Broeksmit, CEO of the Association of Mortgage Bankers, wrote in a statement. “Requiring Fannie Mae and Freddie Mac to raise a 0.5% fee for mortgages they buy will increase interest rates on families trying to make ends meet in challenging times.”
Mortgage refinances have been on the rise for months as interest rates continue to rise almost weekly to set new record highs.
Lenders today have a record amount of equity in their homes, due to high home values and a conservative mindset among consumers since the housing expedition more than a decade ago. Consumers could not only save on their monthly payments through refinancing, but also withdraw much-needed cash in these difficult economic times. Banks have also made huge profits from all activity.
Fannie Mae and Freddie Mac do not lend to consumers, but they buy the loans from lenders and wrap them in securities which are then sold to investors. They then guarantee the principal and interest on the loans in case of default.
Fannie and Freddie have been very profitable lately, with a combined profit in the second quarter of $ 4.3 billion, according to revenue statement. The Federal Housing Financing Agency, which regulates both, is in the process of moving them out of their 11-year term under government conservatory, which would require them to increase sizable cash.
However, the movement seems to be flying in the face of other actions to support the housing and mortgage market.
“At a time when the Federal Reserve is buying $ 40 billion a month in agency MBS to reduce financing costs for mortgage lenders to support the wider economy, this action increases those costs and undermines the Federal Reserve’s policy,” Broeksmit said. e Mortgage Bankers Bond.
The added costs could also have political consequences.
“This is negative for the economic recovery, negative for the housing market,” wrote Jaret Seiberg, housing policy analyst for Cowen Washington Research Group. “It also accuses President Trump of accusing him of trying to tax housing in the wake of the economic crisis. That is a political responsibility for the president. We expect Democrats to exploit this.”
The bigger concern is when the move was made, as the FHFA is increasingly concerned that Fannie Mae and Freddie Mac could incur large losses if the mortgage bailout program ends and lenders have to start making their payments again. The programs were reinstated in April and ballooned to many more lenders than the FHFA’s director, Mark Calabria, originally predicted.
There are currently just under 4 million lenders in government and private sector mortgage lending programs. This allows them to delay their monthly payments by up to a year.
The increase in fees was imposed only on mortgage refinancing, not on loans used to buy a home.
“Rates are higher for refinancing,” notes Matthew Graham, COO of Mortgage News Daily. “FHFA sees that and concludes that lenders have money to give on rebates. It’s a tax based on jealousy, greed, and probably more than a little contempt.”
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