Conventional mortgage refinances just got more expensive

Mortgage refinance costs

That’s right, conventional mortgage refinances just got more expensive.

Both Fannie Mae and Freddie Mac issued bulletins on August 12,2020 announcing the implementation of a new “Adverse Market Refinance Fee”  which will apply to all conventional refinance mortgages closed on or after September 1, 2020.  The bulletins state that the new fee of 0.5% of the loan amount will apply to both cash out and rate and term (or no cash out) conventional mortgage refinances.

Why the new fee on Conventional mortgage refinances?

Freddie Mac’s announcement makes reference to COVID-19 and market uncertainty related to the pandemic. Fannie Mae did not specifically reference the pandemic but rather just market and economic uncertainty. Both entities see the additional fee as a way to protect themselves against additional risk. Though Fannie Mae and Freddie Mac do not lend directly to consumers, they do guarantee the principal and interest when they buy loans from lenders. 

Despite combined record profits of $4.3 billion in the second quarter, both entities seem worried about their future profits once the mortgage bailout program comes to an end..

The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, gave a statement. 
“Based on their projected COVID-related losses, Fannie Mae and Freddie Mac (the Enterprises) requested, and were granted, permission from FHFA to place an adverse market fee on mortgage refinance acquisitions.”

How will the consumer feel the impact of this Adverse Market Refinance Fee?

Though Fannie Mae and Freddie Mac do not lend directly to consumers. They buy loans from lenders and guarantee the principal and interest in the event of a default. Fannie and Freddie are charging the fee to the lender making originating the mortgage, not directly to the consumer.

Fannie and Freddie have several fees that they charge lenders. This includes fees based on credit scores, loan to value, property type, etc. Lenders take these fees into consideration when they determine the mortgage interest rates that they will offer to consumers.  

Loan already locked? Congratulations! Your current rate and cost will not be affected by the new fee as long as you close before your lock expires.  The lender will have to cover that fee if the loan is not closed before Sept 1.  

Pricing on conventional mortgage refinances is already reflecting the 0.5% fee.Interest Rates and your home If you have been sitting on the fence or shopping for rates, it’s time to call your loan officer. Rates fluctuate daily and this new fee means the quote you got on Monday is probably no longer any good..

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