With interest rates fluctuating around historically low levels, a new fee could make it more expensive to refinance your mortgage, experts say.
Fannie Mae (ticker: FNMA) and Freddie Mac (FMCC) announced a new 0.5% fee for limited cash refinancing and payday refinancing on Wednesday night. The fee was introduced “as a result of risk management and forecasting of losses caused by COVID-19-related economic and market uncertainty,” according to Freddie Mac’s bulletin announcing the change.
In statements by Freddie Mack and Fanny May, the spokesman said the fee helped ensure liquidity and stability in an uncertain market. They also noted that the fee applies to creditors who could choose not to pass them on to borrowers. For lenders who do so, they estimate that borrowers will see an impact of about 0.1% per year.
The new price, called the adverse market refinancing fee, is a fee for mortgage originators who sell refinancing loans to state-sponsored businesses. Lenders, in turn, could pass on the fee to borrowers refinancing eligible loans, those who comply with a set of conditions that make them eligible for purchase by state-sponsored enterprises. In a statement Wednesday night, the Mortgage Bankers Association, a trade group, estimated that the average refinancing agent would pay $ 1,400 more than they would otherwise have as a result of the fee.
The trade group issued a supplementary statement condemning the policy Thursday night as part of a coalition of 20 housing and financial services groups, including the American Bankers Association, the National Housing Builders Association, the National Brokers Association and the National Fair Housing Association. Alliance, among others.
“The additional 0.5% mortgage refinancing fee for Fannie Mae and Freddie Mac will incur costs for families trying to bring the ends together in these challenging times,” the statement said. “In addition, the effective date of September 1 means that thousands of borrowers who have not concluded their interest rates could face unforeseen cost increases just days after closing.”
While the long-term impact of the fee on refinancing volumes is yet to be seen, Mike Fratantani, MBA’s chief economist, says the move “will absolutely reduce refinancing”, adding that “lenders change their prices as soon as the news hits . “
Although the fee will limit the number of people for whom refinancing makes sense, “refinancing will not disappear completely,” said Zillow economist Matthew Spickman. “There will still be people for whom it makes sense to go through the process.”
Keith Gumbinger, vice president of the HSH mortgage website, tells Barron he does not expect the new fee to dissuade most homeowners who are considering refinancing. “Collectively, this means that the costs for some mortgage borrowers will be slightly higher than they would otherwise be, but with mortgage rates already at record lows, they should be quite painless,” Gambinger said.
In the short term, the fee could put pressure on lenders, says Fratantoni of the MBA. This is because lenders are likely to cover the costs of borrowers who have concluded their interest rates before the announcement. “This means that from the creditors’ point of view, they are affected by this change in price and therefore bear the full cost,” says Fratantoni. “We hear from creditors who will see losses of millions to, in some cases, tens of millions as a result, because it has appeared on them.”
The fee can have different effects on lenders of different types, says Henry Coffey, managing director of Wedbush Capital Research, which covers special funding. Big loan retailers Fanny and Freddiewill have the biggest impact, while correspondent firms are unlikely to have a big impact, he says.
Shares of several mortgage lenders fell on Thursday after the news. Rocket companies (RKT) ended the day with 6.3%. Flagstar Bancorp (FBC) and Mr. Cooper Group (COOP) also fell, falling 5.3% and 3.5% respectively. The PennyMac Mortgage Investment Trust (PMT) ended the day 1.5% lower. The S&P 500 and Dow Jones Industrial Average fell 0.2% and 0.3% on Thursday, respectively.
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