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A new fee on mortgage refinances set to take effect Sept. 1 has been delayed. This is excellent news for homeowners looking to take advantage of historically low interest rates.
The Federal Housing Finance Agency (FHFA) on Tuesday announced it will delay enforcing its “adverse market refinance fee” until Dec. 1. Additionally, borrowers with loan balances below $125,000 will be spared the fee, which could add thousands to the loan cost when implemented.
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.
The GSEs previously said the fee is necessary “as a result of risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty.”
Still, critics have argued against the timing of the new fee. Refinancing has been the main driver in mortgage lending and a way for homeowners to decrease their monthly bills as rates have fallen to record-lows. The refinance share of mortgage applications is 64.6%, according to the latest data from the Mortgage Bankers Association (MBA).
“Extending the effective date will permit lenders to close refinance loans that are in their pipelines and honor the rate lock commitments they made to their borrowers, ensuring that economic relief in the form of record low-interest rates will continue to flow to consumers,” Bob Broeksmit, president and CEO of the MBA, said.
Mortgages Under $125,000 Will Sidestep Refinance Fee
In addition to postponing the new fee—which would add $1,750 onto the cost of a $350,000 mortgage refinance—the FHFA also said it will not charge the fee on refinance loans with balances under $125,000. This will benefit low-income earners the most. The federal government says almost half of borrowers who have balances below $125,000 earn no more than 80% of the area median income.
Likewise, the new fee will not apply to HomeReady and HomePossible loans, government-backed loans designed to help low-income borrowers buy homes.