July 19th, 2021 10:15 PM by Jackie A. Graves
The Federal Housing Finance Agency is eliminating a major refinancing fee, which could make your next refi even cheaper.
The combination of a housing shortage, the COVID-19 pandemic and historically low interest rates has created ideal conditions for homeowners to refinance their mortgages in many parts of the US. And beginning Aug. 1, the refi deals might get even sweeter.
Mortgage giants Fannie Mae and Freddie Mac have said they will drop the Adverse Market Refinance Fee for all refinanced mortgages starting next month. The refinance fee translated to a charge of 0.5% on refinanced loans, or roughly $500 for every $100,000 borrowed.
The government fee was added in December 2020 to allow Fannie and Freddie to recoup some of the losses the government-backed lenders were expecting to incur during the COVID-19 pandemic. In most cases, lenders passed this fee on to borrowers, which could add thousands of dollars to a refinancing. The move was seen as a way to counterbalance lenders' losses after the CARES Act placed a federal ban on foreclosures and provided homeowners with the option of pausing their mortgage payments.
Though it's not clear that the US economy is on sure footing yet -- inflation spikes have worried some economists -- elimination of this fee is good news for homeowners looking to refinance.
From April to July 2020, when the pandemic was ramping up, approximately 5% of Fannie and Freddie borrowers were enrolled in mortgage forbearance programs. That has since fallen to 2%, according to FHFA data. The agency said the success of its COVID-19 policies reduced the impact of the pandemic on Fannie and Freddie loans, warranting an early end to the fee so that lenders may pass the savings on to borrowers.
"The COVID-19 pandemic financially exacerbated America's affordable housing crisis. Eliminating the Adverse Market Refinance Fee will help families take advantage of the low-rate environment to save more money," acting Federal Housing Finance Agency Director Sandra L. Thompson said in a press release. The FHFA was created following the 2008 housing crisis, and the agency acts as conservator of Fannie and Freddie mortgages.
Some refinance loans were already exempt from the fee, including homes worth $125,000 or less, homes refinanced through Fannie Mae's Home Ready or Freddie Mac's Home Possible programs, and government-backed mortgages, including FHA, VA and USDA loans. Jumbo mortgages between $510,400 and $765,000 in some regions were also exempt.
Refinance rates continue to fall in July, with the exception of 10-year fixed loans. The FHFA said it would continue to monitor the housing finance system and make adjustments as necessary.
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