On August 12, 2020, Fannie Mae and Freddie Mac (the “GSEs”) released Lender Letters advising of a new adverse market refinance fee that will be effective for refinance mortgages with settlement dates on or after September 1, 2020.
The announcements provide that the fee, 50 basis points (0.500%) of the total loan amount, will be assessed for all refinances except for Construction Conversion loans processed as a refinance. The fee does not apply to purchase mortgages. This loan level price adjustment is in addition to any other applicable price adjustments.
According to Freddie Mac Guide Bulletin 2020-32, the new fee results from “risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty.” Lenders are able to pass on the fee to borrowers, who will see the cost of refinancing increase during a time of historically low rates.
On August 13, 2020, a coalition of industry organizations, including the Mortgage Bankers Association, released a joint statement that argues against the additional 0.500% fee being implemented at a time when federal agencies have been urged to support struggling homeowners during the pandemic.
DocMagic will continue to monitor this issue for any additional updates or response from Congress or the Federal Housing Finance Agency.
UPDATE: On August 25, 2020, the Federal Housing Finance Agency ("FHFA") announced that the GSEs will delay the implementation of the adverse market refinance fee until December 1, 2020. Also, the GSEs will exempt refinance loans with loan balances below $125,000. Fannie Mae's HomeReady and Freddie Mac's Home Possible refinance products are also exempt.
The FHFA announcement indicates that the fee is necessary to cover projected COVID-19 losses of at least $6 billion, as the actual amount "could be higher depending on the path of the economic recovery." The GSE expenses are expected to at least include: $4 billion in loan losses due to projected forebearance defaults; $1 billion in foreclosure moratorium losses; and $1 billion in servicer compensation and other forbearance expenses.
