After Broad Industry Criticism, FHFA Delays Controversial Refi Loan Fee

John Jordan | August 2020

Refinance mortgage application on a desk.

WASHINGTON—A little over a week after first proposing a controversial 0.5% Adverse Market Refinance Fee on Fannie Mae and Freddie Mac loans, the Federal Housing Finance Agency announced on Aug. 25 that it would delay the fee’s implementation until Dec. 1, 2020.

The FHFA first announced the Adverse Market Refinance Fee on Aug. 12 and stated at the time that it would go into effect on Sept. 1, 2020.

The FHFA also announced that Fannie Mae and Freddie Mac (Government-Sponsored Entities) will exempt refinance loans with loan balances below $125,000, nearly half of which are comprised of lower income borrowers at or below 80% of area median income. Affordable refinance products, Home Ready and Home Possible, are also exempt.

The agency stated that the new fee is necessary to cover projected COVID-19 losses of at least $6 billion at the enterprises. Specifically, the actions taken by the GSEs during the pandemic to protect renters and borrowers are conservatively projected to cost the enterprises at least $6 billion and could be higher depending on the path of the economic recovery.

Those expenses are expected to at least include: $4 billion in loan losses due to projected forbearance defaults; $1 billion in foreclosure moratorium losses and $1 billion in servicer compensation and other forbearance expenses.

Throughout the pandemic to protect borrowers and renters while supporting the mortgage market, FHFA allowed the GSEs to: offer forbearance on multifamily and single-family mortgages; buy loans in forbearance; modify mortgage terms to reduce monthly payments and simplify repayment options; provide protections for tenants in properties in forbearance and provide loan processing flexibility.

Housing and finance advocacy groups praised the delay of the Adverse Market Refinance Fee. Mortgage Bankers Association President and CEO Bob Broeksmit, CMB, said, “We welcome today’s announcement from the FHFA amending the recently announced Adverse Market Refinance Fee from Fannie Mae and Freddie Mac. Extending the effective date will permit lenders to close refinance loans that are in their pipelines and honor the rate lock commitments they made to their borrowers, ensuring that economic relief in the form of record low interest rates will continue to flow to consumers.”

He added, “We understand that the pandemic and the associated borrower assistance measures the GSEs have instituted impose significant costs on the GSEs and on mortgage servicers, and we are gratified that the revised guidelines also reflect the need to lessen the impact on borrowers with modest incomes or low loan amounts. Likewise, we support the previously announced exemption of all home purchase loans.”

He added that the MBA would work with the FHFA and the GSEs to ensure future policy and pricing decisions “strike the right balance between allowing the GSEs to appropriately manage their risk and continuing to offer affordable and sustainable home purchase and refinance opportunities to all qualified borrowers.”

A coalition of housing and finance agencies, including the MBA and the National Association of Realtors and public service groups came out strongly against the FHFA’s Adverse Market Refinance Fee earlier this month.

In a joint statement, the coalition stated, “In spite of the fragility of the national economic recovery, the mortgage market has been able to withstand many of the most severe effects of the COVID-19 pandemic. The recent refinance activity has not only helped homeowners lower their monthly payments, but it is also reducing risk to the GSEs and taxpayers. At a time when the Federal Reserve is purchasing $40 billion in agency mortgage-backed securities per month to help reduce the cost of buying or refinancing a home and stimulate the broader economy, this action by the GSEs raises those costs, contradicting and undermining Fed policy.”

John Jordan
Editor, Real Estate In-Depth