Refinancing your home is about to get more expensive. That is why

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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.

Mortgage rates have never been lower

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.

Fannie and Freddie argue that the fees will not increase the cost of homeowners’ mortgage payments because refinancing generally reduces payments. They say that for an average refinanced mortgage, homeowners can estimate a reduction in savings of about $ 15 per month due to fees. Homeowners refinancing who previously saved $ 133 on their monthly payments will now save $ 118 per month, on average, they said.
Initially, the fees were to go into effect on September 1. But following industry backlash and political backlash, the Federal Housing Finance Agency, which is the regulator that oversees Freddie and Fannie, has announced that it will delay implementing the fees until December 1. .
The agency also added that loans with balances less than $ 125,000 will be exempt from fees, as well as affordable Home Ready and Home Possible refinancing products.

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.

This year, mortgage rates have repeatedly hit record lows. The rate on a 30-year fixed-rate mortgage fell from 3.65% in mid-March to 2.27% in mid-November, the thirteenth all-time high this year, according to Freddie Mac.

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.

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“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.”

The FHFA says the fees are necessary because they are needed to cover billions of Covid-19-related losses at Freddie and Fannie. Specifically, the steps businesses took during the pandemic to protect tenants and borrowers – including offering forbearance programs, purchasing loans with forbearance, and changing mortgage terms to reduce monthly payments and simplify repayment – which is expected to cost at least $ 6 billion, conservatively projected, according to the FHFA.

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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