Mortgage refinancing will get more expensive with surprise agency fee

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In a surprise move, mortgage giants Fannie Mae and Freddie Mac say they’ll begin imposing a new fee of 0.5 percent on all refinancings that close after Sept. 1. For a borrower refinancing a $300,000 loan to take advantage of record-low rates, the move will add $1,500 in new costs.

The new fee was announced late Wednesday. Freddie Mac’s notice to lenders cited “risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty.” Consumer advocates and the lending industry immediately decried the additional cost.

“Make no mistake, the consumer is going to end up paying this fee. Diluting the benefit of refinancing and discouraging homeowners from doing so during the worst economic downturn in 90 years doesn’t make sense,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “As if there aren’t enough fees involved in refinancing, as if the process doesn’t contain enough unwelcome surprises for the borrower, now you have this.”

The Mortgage Bankers Association also criticized the move. “Requiring Fannie Mae and Freddie Mac to charge a 0.5 percent fee on refinance mortgages they purchase will raise interest rates on families trying to make ends meet in these challenging times,” the organization said. “This means the average consumer will be paying $1,400 more than they otherwise would have paid. Even worse, the September 1 effective date means that thousands of borrowers who did not lock in their rates could face unanticipated cost increases just days from closing.”

Rock-bottom rates create refinancing frenzy

Mortgage rates have plunged to record lows this year, setting off a flurry of refinancing activity. Many lenders are marketing 30-year fixed-rate mortgages with rates below 3 percent.

However, origination points and closing costs can quickly add up. Those expenses typically add 2 percent to 5 percent to the cost of a loan, and the new 0.5 percent fee would add an extra layer of cost for homeowners deciding whether refinancing makes sense.

McBride called on the Federal Reserve to stop buying mortgage-backed securities issued by Fannie and Freddie.

“The money creation that risks future inflation for all of us has been justified by keeping markets functioning and putting money into homeowners’ pockets,” McBride says. “But not this. Refinancers that haven’t locked their rates and are waking up this morning to see this fee should consider abandoning their applications. This will only extend the breakeven period to recoup the costs of refinancing that deter homeowners from doing so in the first place.”

The Mortgage Bankers Association likewise called for the Federal Housing Finance Agency, which oversees Fannie and Freddie, to reverse the fee.

“This announcement is bad for our nation’s homeowners and the nascent economic recovery,” the group says. “We strongly urge FHFA, which had to approve this policy, to withdraw this ill-timed, misguided directive.”

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