Refinancing in a nutshell to avoid the disadvantageous refinancing fee of the FHFA

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The FHFA fee starts December 1st, but prices will increase before that

From December 1, a new “Adverse Market Refinance Fee” will be charged for most conventional refinancing.

But homeowners don’t pay the new fee upon completion.

Instead, lenders will cover this by increasing refinancing rates – probably by as much as 0.125% to 0.25% on average.

To avoid higher interest rates, you should refinance before the fee takes effect.

But there’s a catch: in order to avoid the FHFA fee, your refinance loan must be closed and Delivered to Fannie Mae or Freddie Mac before December 1st.

Homeowners who want the lowest possible refinance rate should apply 2-3 months before December 1st – which is pretty much the case right now.

Find and get a low refinance rate now (May 24th 2021)

What is the reverse market refinancing fee?

On 12. August, Fannie Mae and Freddie Mac announced that they will charge a new fee for all conventional refinancing loans.

The fee is 0.5% of the loan amount.

That is, if you had a $ 200,000 refinancing, the new fee would add up to an additional $ 1,000.

Closing and delivering refinances takes a long time. Therefore, a start date on September 1st meant that the fee had already been added to ongoing refinancing.

Originally, the fee was supposed to start on September 1st – meaning it would apply to any loan that hasn’t been delivered to Fannie or Freddie by that date.

However, since it takes a long time for refinances to complete and complete, the fee has effectively been added to the loans that were already in process before September 1st.

However, Fannie and Freddie have since changed the rules (and postponed the start date for the fee) in response to a strong backlash in industry on the other hand.

Changes to the FHFA refinancing fee

On August 25, the FHFA announced two changes to the new refinancing fee.

This is good news for borrowers. This means that prices may stay a little lower and a little longer.

It also means that borrowers who have already been in the refinancing process may not see their interest rates rise because of the fee.

In fact, the loans currently in the pipeline could readjust their borrowing costs in favor of borrowers, notes Matthew Graham of Mortgage News Daily.

But each lender will treat their own loans differently. So be sure to speak to your mortgage company if you are in a refinancing phase.

Also note that credits must be delivered to Fannie or Freddie before December 1st to avoid the fee.

That means refinancing needs to be completed much earlier (in October or early November) so plan your refinance accordingly.

Find and lock a low refinance rate (May 24, 2021)

The new fee could increase refinancing rates by 0.125% or more

When the new fee goes into effect, borrowers will not pay it directly.

Instead, it will likely be billed to borrowers in the form of higher interest rates.

“The fee is 50 basis points [0.50%] in terms of PRICE, which is roughly 0.125% in terms of the interest rate, ”says Graham.

Although others appreciated These refinancing rates could increase on average by up to 0.375% at the time the fee becomes effective.

In both cases, this is a significant difference in refinancing rates for borrowers.

For those planning to refinance in the near future, it makes sense to get the ball rolling ASAP.

The earlier you start your refinancing, the better your chances of closing and Delivering the loan to Fannie Mae or Freddie Mac before the fee comes back into effect.

Find a low refinance rate today (May 24, 2021).

Will all refinancing be affected by the new fee?

The reverse market refinancing fee only applies to refinancing loans sold to Fannie Mae and Freddie Mac.

In other words, it applies to “conventional” refinancing loans.

However, other types of mortgages could be indirectly affected.

In fact, the initial announcement set higher interest rates on purchase and refinance loans, including some that are not intended for sale to Fannie Mae and Freddie Mac.

Those who did not set interest rates suddenly faced higher interest costs.

In the coming months, it can therefore be assumed that conventional refinancing will not be the only type affected by rising interest rates.

No refinancing fee for loans under $ 125,000

Good news from Fannie and Freddie’s recent announcement is that the refinance fee is not applied to loans below $ 125,000.

Note that this is based on the loan balance – not the home value.

So, if your home is worth well over $ 125,000 but you’ve paid most of the balance, you may be refinancing less than $ 125,000 and the fee won’t affect you.

In addition, the fee is not charged to those who refinance a Freddie Mac Home Possible loan or a Fannie Mae HomeReady loan.

Why was a new fee developed?

We have been facing the COVID-19 economy for months. Around 55 million people have applied for unemployment and lenders have had to adjust many of their policies to accommodate the added uncertainty.

But has something new happened to justify this additional fee?

According to Freddie MacThe new fee was necessary “because of the risk management and loss forecast generated by the economic and market uncertainty associated with COVID-19”.

Fannie Mae stated that the fee was added “given the market and economic uncertainty leading to higher risk and higher costs”.

However, on August 25th there was a different answer.

According to the Federal Office for Housing Financing (FHFA) – the regulatory agency that runs Fannie Mae and Freddie Mac – the new money was “necessary to cover the company’s projected COVID-19 losses of at least $ 6 billion”.

“In particular,” according to the FHFA, “the measures companies took to protect tenants and borrowers during the pandemic are conservatively expected to cost companies at least $ 6 billion and could be higher depending on the economic recovery path.” . “

This refers to aid packages that were passed during COVID-19 that allowed borrowers to skip mortgage payments without penalty and prevented lenders from taking out criminal loans.

But that amount is a fraction of the $ 109.5 billion in profits that Fannie and Freddie put into the treasury even after repaying bailouts they received during the 2008 housing crisis ProPublica.

Anyway, it seems like a good idea to us to use a small percentage of the profits of the past few years to help homeowners with a global pandemic.

Will Congress stop the new fee before it goes into effect?

The adverse market refinancing fee is now set to begin after the November elections.

Could the election results have an impact on whether or not the fee actually comes into effect?

That’s not safe. Both Congresswoman Maxine Waters (D-CA), Chair of the House Committee on Financial Services, and Congressman Wm. Lacy Clay (D-MO), Chair of the Housing, Community Development and Insurance Subcommittee, reject the new indictment.

If the resistance to the fee is strong enough, an investigation into the fee and an attempt to stop it could possibly be made. However, there is no guarantee that it will.

What to do if you want to refinance

Interest rates are still near record lows – below 3% in many cases. This is basically unknown in the mortgage world.

Interest rates are likely to rise as the start date for the new refinancing fee approaches. However, this is just one of the many, many factors that can affect mortgage and refinance rates.

If the economy really does recover anytime soon, regardless of what happens to the refinancing fee, rates could go up. On the other hand, they probably won’t go much deeper than they do now.

So for borrowers looking to refinance at record-low interest rates, it makes sense to start sooner rather than later.

Check your new plan (May 24, 2021)


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