Fannie and Freddie pushing COVID refi fee to December
WASHINGTON — The Federal Housing Finance Agency is delaying a Fannie Mae- and Freddie Mac-imposed fee on refinanced mortgages set to start next week until Dec. 1 after intense backlash from the mortgage industry.
The government-sponsored enterprises said Aug. 12 they would start charging an additional “adverse market fee” of 0.5% on refis due to the economic uncertainty caused by the coronavirus pandemic. But the short notice and estimates that the fee could lead to significant costs for consumers looking to refinance riled both lawmakers and mortgage lenders. They urged the FHFA to reconsider the policy.
The fee “is necessary to cover projected COVID-19 losses of at least $6 billion at the enterprises,” the FHFA said in a news release Tuesday. The fee will go into effect as planned in December unless the agency can find another way to recoup projected losses.
Fannie and Freddie will also exempt mortgage loans with a balance of less than $125,000 from the fee when it goes into effect Dec. 1, the agency said.
The policy resembles a similar fee that the companies implemented during the financial crisis. However, the two situations are somewhat different. The companies imposed the 2008 fee as they faced dramatic losses from the housing crash. Soon after they announced that fee, the GSEs were placed in government conservatorship, and they remain in conservatorship.
By comparison, today the GSEs already have the financial backing of the U.S. government, and the mortgage sector to date has limited effects from the coronavirus pandemic. The companies' second-quarter earnings were a combined $4.33 billion.
Fannie CEO Hugh Frater and Freddie CEO David Brickman pushed back on some of the criticism of the fee last week, issuing a joint statement arguing that lenders could eat the cost of the fee themselves instead of passing it on to borrowers.
“Contrary to much of the criticism we have received since making this announcement, this will generally not cause mortgage payments to ‘go up,’ ” they said. “The fee applies only to refinancing borrowers, who almost always use a refinancing to lower their monthly rate.”