Fannie Mae and Freddie Mac Raise Fees Overnight. What Does This Mean for Homebuyers?

Freddie Mac and Fannie Mae dropped surprising news late Wednesday evening. The mortgage giants will begin imposing a new fee of 0.5 percent of the loan amount (i.e. $1,500 on a $300,000 loan) on all refinances that close after September 1, 2020. A .5 percent in fee translates to about 1/8^th in rate.

Fannie and Freddie are attributing this new fee to economic and market uncertainty. The additional charge is designed to shield the two entities from the additional risk brought on by the coronavirus pandemic. While it may sound like they’re just covering their bases, this move has not been welcomed with open arms from mortgage industry professionals. Bob Broeksmit, CEO of the Mortgage Bankers Association, stated, “This announcement is bad for our nation’s homeowners and the nascent economic recovery. Requiring Fannie Mae and Freddie Mac to charge a 0.5% fee on refinance mortgages they purchase will raise interest rates on families trying to make ends meet in these challenging times.”

According to a recent CNBC article on the subject, today’s homeowners have a record amount of equity in their homes. This is due to high home values and a conservative mindset since the 2008 housing crash. This has proven to be especially helpful during these difficult economic times as consumers are not only able to save on their monthly payments through refinances, but also have the ability to pull out much-needed cash.

Does this affect purchases?

If you’re taking advantage of the current market and purchasing a new home, you’re in luck. Freddie Mac and Fannie Mae’s new fee will not impact your purchase.

How will this affect refinances?

If your loan lock date precedes September 1, 2020 then you can stop reading here. The new fees will not impact your loan as of now. If your loan lock date falls after the first of September, contact your mortgage banker to find out more information on what’s to come and how this new fee will impact your loan.

What’s next?

While the additional charge is unlikely to bring mortgage refinancing to a halt, it will surely throw a wrench in the gears of what has been a smooth-running machine. The Mortgage Bankers Association called for the Federal Housing Finance Agency, which oversees Fannie and Freddie, to reverse the fee.

In the coming days, Mark Calabria, Director of the Federal Housing Finance Agency, is sure to face fierce opposition from industry groups, a handful of forceful statements from Capitol Hill, and potentially even some headline resistance from Trump Administration officials looking far and wide for means of easing economic conditions.

It will take time to gauge whether the opposition to this pricing change will prove successful, but the short time-frame and the inherent malaise in Washington during August will make stopping this change difficult.

Bottom line. Rates are still close to absolute historic lows and homeowners should be taking advantage of low rates before FHFA decides to layer on even more fees.