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Andrew Harrer / Bloomberg
With interest rates on historic leases, a new fee could make it more expensive to refinance your mortgage, experts say.
Fannie Mae (ticker: FNMA) and Freddie Mac (FMCC) announced a new 0.5% fee on limited cash-out refinances and cash-out refinances on Wednesday night. The compensation was introduced “as a result of risk management and injury forecasting precipitated by COVID-19-related economic and market uncertainty,” according to the Freddie Mac bulletin announcing the change.
In statements by Freddie Mac and Fannie Mae, spokesmen said the fee would help provide liquidity and stability in an uncertain market. They also noted that the fee applies to lenders who could choose not to give it to lenders. For lenders who do so, they estimate that lenders will see an impact of around 0.1% each year.
The new costs, referred to as an Adverse Market Refinance Fee, are a fee for mortgage originators who sell loans to government-sponsored companies. Creditors, in turn, could pass the fee on to lenders who refinance with compliant loans, those who adhere to a set of conditions that make them eligible for purchase by government-sponsored companies. In a statement Wednesday night, the Association of Mortgage Bankers, a trading group, estimated that the average refinancer would pay $ 1,400 more than they would otherwise have as a result of the fee.
The trade group issued an additional statement Thursday night condemning the policy as part of a coalition of 20 groups involved in housing and financial services, including the American Bankers Association, the National Association of Home Builders, the National Association of Realtors, and the National Fair Housing Alliance, among others.
“The additional 0.5% fee on Fannie Mae and Freddie Mac refinancing mortgages will increase costs for families trying to make an end in these challenging times,” the statement said. “Moreover, the effective date of September 1 means that thousands of lenders who could not lock up their rates without expecting days with cost increases just days of closing.”
While the long-term effect of the fee on refinancing volume is yet to be seen, Mike Fratantoni, chief economist at the MBA, says the move will “absolutely result in a reduction in refinancing,” adding that “lenders will increase their prices accordingly. as soon as the news came. “
While the fee will limit the number of people for whom refinancing makes sense, “refinancing activity will not completely disappear,” says Zillow economist Matthew Speakman. “There will still be people for whom it makes sense to go through the process.”
Keith Gumbinger, vice president of mortgage website HSH, tells Barron’s he does not expect the new fee to deter the majority of homeowners from refinancing. “Collectively, it means that costs for some mortgage lenders will be a little higher than they would otherwise be, but with mortgage rates already at record lows, it should be quite painful,” says Gumbinger.
In the short term, the fee could put pressure on lenders, says Fratantoni of MBA. That’s because lenders are likely to cover the cost for lenders who lock up their rates before the announcement. “What this means from the lenders’ perspective is that they are affected by that change in price and that they therefore bear the full cost,” Fratantoni says. “We hear from lenders who as a result will see losses of millions, in some cases tens of millions, because this has jumped on them.”
The fee can have varying effects on lenders of various kinds, says Henry Coffey, director of Wedbush’s equity research on specialty financing. Great retail originators of Fannie and Freddie loanswill see the biggest impact, while correspondent companies are unlikely to see much impact, he says.
Shares of several mortgage lenders fell Thursday following the news. Rocket Companies (RKT) ended the day with 6.3% down. Flagstar Bancorp (FBC) and Mr. Cooper Group (COOP) also fell 5.3% and 3.5% respectively. PennyMac Mortgage Investment Trust (PMT) ended the day 1.5% lower. The S&P 500 and the Dow Jones industrial average fell 0.2% and 0.3%, respectively, on Thursday.
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