Refinancing your mortgage will cost you more thanks to a new fee from Fannie Mae and Freddie Mac

“As a result of risk management and loss forecast precipitated by COVID-19-related economic and market uncertainty, we are introducing a new market-rate credit facility,” Freddie Mac said in a message to lenders.

The Federal Housing Financing Agency, which regulates Fannie and Freddie, said the two government-sponsored companies “requested and received permission from FHFA to place a negative market money on mortgage refinancing purchases.”

Fannie and Freddie are not lenders themselves – instead they buy loans from lenders, wrap them in mortgage-backed securities and then sell these securities to investors. Fannie and Freddie also provide guarantees to investors and prepayments, even if lenders are defaulting on the loans.

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The new fee could in many cases add a significant sum. The median home nationwide was worth $ 291,300 as of the second quarter, according to the National Association of Realtors. Therefore, if you applied this fee to a mortgage on a home that is worth so much, assuming a 20% down payment, the fee would cost more than $ 1,100. The Association of Mortgage Bankers, a trading group representing lenders, said the fee would average $ 1,400 per loan.

It’s not the first time Fannie and Freddie have charged a fee like this. In 2007, Fannie Mae levied a 0.25% VAT on all mortgages it bought from lenders in response to the growing global financial crisis.

But the new fee was immediately criticized after it was announced. “Fannie and Freddie say they charge the fee to account for market uncertainty and higher risk,” said Holden Lewis, home and mortgage expert at NerdWallet’s personal finance website. “But if that’s really the reason, it’s strange that they also do not buy the fee on mortgages for purchase.”

Others argued that timing could catch up with homeowners and lenders.

“It makes no sense,” Bob Broeksmit, president and CEO of the Association of Mortgage Bankers, told MarketWatch. “The timeline for implementation is intentionally punitive and absurd.”

As of June, it took an average of 48 days to take out a refinancing loan, according to mortgage technology firm Ellie Mae. Therefore, lenders will have a lot of loans already in the pipeline where lenders have already locked up a rate and are just waiting to finalize the loan.

If lenders are unable to complete these loans by Sept. 1, they will be forced to pay the fee. However, if a borrower had not yet closed a rate with their lender, the cost of the new fee would in most cases be passed on to them.

“If you had a refusal pending and had not locked it or just thought of a ref and had not yet acted, the consumer would pay thousands of dollars as long as it remained in effect,” Broeksmit said.

Broeksmit also questioned the need for compensation in doubt. Millions of lenders nationwide have applied for their mortgages since the pandemic began, but that number has fallen in recent weeks.

And roughly a quarter of the people who signed a paycheck, which means they could skip their monthly payments, made their July payment, Broeksmit said. Furthermore, lenders applying for a refinance should be up to date on their mortgage in the first place, making those loans less likely to be risky. Many lenders have also introduced stricter requirements for lenders to be eligible for a mortgage.

The new fee threatens to make the refinancing a less lucrative proposition for homeowners who are still stuck in the rock-bottom rates of the market. Repayed volume has increased in recent months due to the environment for low mortgage rates. Since March, mortgage rates have fallen at record lows on eight separate occasions.

But lenders applying now will not be so happy. “Through this artificial increase, it requires a greater drop in rates to make it worthwhile for lenders to refinance,” Broeksmit said.