A 0.5% fee on mortgage refinances that was set to take effect on Sept. 1 has been pushed back to December, which is good news for homeowners looking to take advantage of historically low interest rates.
The “adverse market refinance fee” has been proposed to be added to all refinances sold to Fannie Mae and Freddie Mac. Bumping back implementation to December should help homeowners who are still dealing with economic uncertainty due to the COVID-19 pandemic and may want to refinance their mortgages in the fall to benefit from the low rates.
The Federal Housing Finance Agency (FHFA) also announced that the fee will be waived for borrowers with loan balances below $125,000.
While both measures should be helpful for homeowners, some in the industry have been critical of implementing the fee at all. Refinances make up roughly 65% of all mortgage applications currently, according to the Mortgage Bankers Association (MBA), and critics have questioned the logic of potentially dampening that activity.
"There are not a lot of economic bright spots right now," Greg McBride, chief financial analyst at Bankrate, told CNN Business. "But one is that with record low mortgage rates homeowners can refinance their mortgages and generate meaningful monthly savings. That savings can shore up their finances and they will end up pumping it back into the economy. Why would you dampen that?"
While debate over the fee will surely continue into the fall and winter, the positive news at the moment is that mortgage applications — for both new homes and refinances — are up more than 30% year over year. A slow start to the buying season in March and April, when COVD-19 was first starting to peak, has led to pent up demand in the summer, and the low interest rates only help the cause. Not surprisingly, home sale numbers have been up recently, too.
For some additional insight on the postponement of the adverse market refinance fee, check out this post from the Worldwide ERC.
The adverse market refinance fee is a 0.5% charge that is expected to be added to all mortgage refinances sold to Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSE) that purchase about 70% of all home loans from lenders. Housing industry organizations roundly criticized the FHFA’s initial September implementation date, as homeowners continue to face job insecurity and a shaky economy amid the coronavirus.