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“The COVID-19 pandemic financially exacerbated America’s affordable housing crisis,” Sandra L. Thompson, the FHFA’s acting director, said in a statement. “Eliminating the Adverse Market Refinance Fee will help families take advantage of the low-rate environment to save more money.”
What ending the refinance fee means for borrowers
Borrowers didn’t pay the fee directly. Instead, lenders usually boosted rates by an eighth of a percentage point, or about $20 a month on a $300,000 loan.
“Repealing this ill-conceived and misappropriated fee is a win for borrowers and lenders alike,” says Greg McBride, CFA, Bankrate chief financial analyst. “Some of the savings will make it into the pockets of consumers, but how much the borrower sees will be dependent on shopping around for the best deal.”
A number of trade groups for the housing industry, including the National Association of Realtors and the Mortgage Bankers Association, had objected to the fee. In the end, it lasted for just eight months.
“Santa Claus has come early for homeowners looking to refinance their mortgages,” McBride says.
Why regulators created the refinance fee
FHFA oversees Fannie Mae and Freddie Mac, the mortgage giants that buy about two-thirds of all U.S. home loans. Fearing a repeat of the foreclosure crisis of the Great Recession, the agency imposed the fee during the darkest days of the coronavirus pandemic. However, the FHFA’s move generated intense criticism. As a compromise, the FHFA delayed the fee for a few months, and said it wouldn’t apply to loans of less than $125,000.
While regulators were bracing for a housing crash, the opposite happened: Home prices have soared, and foreclosures have fallen to record lows.
The fee was championed by Mark Calabria, who had been appointed head of the FHFA during the presidency of Donald Trump. Calabria argued that the mortgage giants were “not close to safety and soundness.”
“In their current condition, Fannie and Freddie will fail in a serious housing downturn,” Calabria said last year.
Calabria no longer is in charge, and McBride welcomed the end of the refi fee.
“The justification for the fee when it was sprung on the market was that it was necessary to pay for the costs of forbearance and pandemic-related payment relief incurred by Fannie Mae and Freddie Mac,” McBride says. “But the homeowners punished were those that weren’t high risk, weren’t in need of forbearance or payment relief and were in fact reducing their risk to the mortgage finance marketplace by reducing their rates and monthly payments. It never passed the smell test to begin with.”