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But starting December 1, refinancing will likely cost homeowners more. Fannie Mae and Freddie Mac will charge a new – and hotly contested – “adverse market commission” on refinanced mortgages.
Fannie and Freddie, who guarantee about half of the nation’s mortgages, don’t give mortgages directly to borrowers, but rather buy mortgages from lenders and repackage them for investors. The new fees will be levied on the lenders, requiring them to pay an additional 0.5% of the loan amount as a one-time charge on the total loan amount.
That comes down to about $ 1,400 on an average mortgage, according to the Mortgage Bankers Association.
But the costs will likely be felt by homeowners, as lenders would have to pass on the costs.
“Whether you pay it up front or during the term of a loan, you’ll pay it off,” said Mike Fratantoni, chief economist at the MBA. “And it can make the difference whether it’s worth refinancing or not for many people.”
He estimates that the additional cost will result in refinancing 10 to 15 basis points higher than a purchase loan.
Nearly 20 million homeowners could benefit from refinancing at current rates, according to Black Knight, a mortgage data company. This includes 4.5 million homeowners who could save at least $ 400 per month and 2.7 million who could save $ 500 or more each month by refinancing at current rates.
Giant loans, or those too large to be purchased or guaranteed by Fannie and Freddie, are not directly made, although these loans carry higher interest rates initially. Borrowers who obtain FHA, VA, USDA Rural, or other non-Fannie Mae or Freddie Mac loans are also not subject to the fees.
The fees can be avoided by refinancing with a bank or online lender that issues and holds the loan or sells it to private investors, rather than selling it to Fannie or Freddie. But these types of loans often come with higher rates.
Extremely low rates drive a lot of the volume, Fratantoni said, both for home purchase loans and for refinancing a current mortgage.
Fratantoni said these charges will now be built into the prices.
“We expect mortgage rates to be on the rise in 2021,” he said. “It was going to happen anyway, resulting in lower refinancing volumes next year. These fees will add to that.”
Currently, the FHFA predicts $ 4 billion in loan losses due to planned forbearance defaults, $ 1 billion in foreclosure moratorium losses and $ 1 billion in managing agent compensation and other forbearance costs.
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